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Wage Wars - By Charles Payne

Question of the Week

Wal-mart is seemingly losing its "bad guy" façade by announcing the increase of wages and benefits for over half a million employees. However, such changes come at a high cost, even for a company of 1.3 million employees. Do you believe that these changes will actually help or hurt Wal-mart's business and image in the long run? Let us know what you think!

Post your answer below.

There was a lot of news out last week, but perhaps the biggest news came from Wal-Mart when they lifted the wages for starting employees and other management levels.

Entry-level employees will start out at $9.00 an hour. Next year, employees with six months of skill-based training will see their wages move to $10.00, which is monumental for a company with 1.3 million employees. Immediately, the political debate was joined on whether the left was somehow winning and if it was a smart business decision.

I say it was more about business as workers have been quitting retail jobs in droves, underscored by the 21% leap in December versus the overall businesses without retail. All this time the experts were looking for wages to begin moving higher in areas of special skills. However, retailers are finding it difficult to find the right skills. Keep in mind that the right skills are what used to be commonplace work requirements.

According to the Empire State Manufacturing Survey of April 2014, employers had the most difficulty-finding workers proficient in:

  • Advanced Math
  • Punctuality
  • Basic Math

Basic Math Workers Quitting Jobs

Dec 2013- Dec 2014

Overall

+11%

Retail

+21%

Missing in the debate was Wal-Mart's new commitments to better scheduling; including fixed schedules, and longer lead-times to those schedules, and opportunities for workers to put in more hours.

http://blog.walmart.com/in-letter-to-associates-walmart-ceo-doug-mcmillon-announces-higher-pay

So, is being a more generous employer important for shareholders? If you take the most loved of discount retailers (Costco) versus the most unloved (Wal-Mart), the answer would seem to be yes, as the former is up more than 150% in the last few years versus 55% for the latter. In fact, you have to go back to 1990 to find them equal in return 1400%.

WMT vs. COST

Of course, there are other factors and some would say Sam's Club is a more apples to apples comparison with Costco. However, the news will impact all of the retail companies, and perhaps fast food companies as well. But from what I can see, this is a business decision based on the ability to hike wages; (the company posted its best same-store sales in years), and the need to find better workers, even in the would-be lower skills area. Maybe at $9 an hour, the $10-an-hour people will come to work on time, be courteous, and see the upside to being on the ladder of success.

In the meantime, the question whether this moves the needle for the Fed remains to be seen. However, I don't think it's enough. The increases probably don't trigger the textbook inflation, but part and parcel will make it more difficult for the Fed to hold pat. I can't wait for the Fed to begin raising rates, it will be an exciting time, and for those that sell on the news it will help create opportunities as market value makes it harder to find value.

Today's Session

The Dow Jones Industrial Average and the S&P 500 are poised to open lower this morning after closing out last week at record levels. One merger in biotechnology is lifting the NASDAQ, but it's not enough to move the needle ahead of a week focused on housing, the Fed and retail.

The focus is on NASDAQ which acts better into the open but we are not forcing anything yet this morning.

Earnings were light this morning, but below are a handful of notable companies that reported this morning:

Date

Company

EPS

Cons.

Revenue ($M)

EPS Guidance

EPS Consensus

23-Feb

CTB

0.45

0.64

$820

-

FY15 2.96

23-Feb

DISH

0.89

0.43

$3,640

-

FY15 1.75

23-Feb

VRX

2.58

2.56

$2,280

Q1 2015 2.30 <

Q1 2015 2