Sam’s closures quashed PR bonanza of Wal-Mart pay hikes and bonuses, but analysts have eye on longer term
Wal-Mart Stores Inc.’s dueling announcements Thursday — one focusing on new associate benefits and the other revealing the closure of 63 Sam’s Club locations — may not have added up to a great look for the company, but analysts think the moves are positive for long-term corporate health.
“Management does not help its own cause when it allows other events to juxtapose themselves alongside a good announcement such as the wage announcement,” wrote Raymond James analysts led by Budd Bugatch, who said he was “bemused, if not irritated” by the way the pay-raise announcement was covered by the media.
“But when you are as big and perceived as powerful as Wal-Mart, the reality is there is likely no good way or time to accomplish this type of action,” the note said. “That said, the optics are just not very good.”
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Analysts there said they were expecting Sam’s Club closures.
“New leadership was installed last year and it has been clear, since the October investor meeting, that [the] Sam’s strategy was being changed,” the note said.
Raymond James rates Wal-Mart shares WMT, +0.65% a strong buy with a price target of $113, up from $110.
Wal-Mart announced a set of new employee benefits, including a minimum-wage raise to $11, a one-time bonus and an expansion of maternity and parental leave.
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According to an email from a Wal-Mart representative sent Friday morning, bonus payouts will range from “$200 for those [who] have been with the company less than two years and don’t benefit from the new starting rate” to $1,000 for those who have been with the company for 20 years or more.
Wal-Mart is also closing 63 Sam’s Club locations as part of an effort to build a “strong fleet [of stores] that are fit for the future,” according to a statement from the Sam’s Club unit’s chief executive, John Furner. Wal-Mart expects to take a discrete charge of about 14 cents per share, which will be recorded largely in the fourth quarter. Wal-Mart said it will release quarterly results on Feb. 20.
The closures will result in 10,000 job cuts and leave Wal-Mart with 597 U.S. Sam’s Club locations. Up to 12 of the shuttered locations will be converted to e-commerce fulfillment centers. The first of those fulfillment centers is to be in Memphis.
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Susquehanna Financial Group analysts said they see the first announcement as “rewarding” employees and the second as a “commitment” to shareholders.
“Both actions are consistent with [the company’s] long-term strategy and should only help further the impressive results we’ve seen recently,” the note said. “The closures will not only improve the productivity of Sam’s Club chainwide, but will also put the remaining 597 Sam’s Club locations and their employees on even stronger footing.”
Susquehanna rates Wal-Mart shares positive with a $115 price target.
BTIG analysts put forth a thesis under which dollar stores could benefit from the wage increases announced by Wal-Mart and Target Corp. TGT, +3.42% .
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“While clearly not every dollar will be spent at dollar stores, we believe this is positive for Dollar General DG, +0.65% , Dollar Tree DLTR, +2.88% and Five Below FIVE, -1.45% as the low-end consumer has a high propensity to spend incremental wage gains, with discretionary items likely to benefit more than consumables,” wrote analysts led by Alan Rifkin in a note. “This is beneficial, as discretionary has higher margins.”
Wal-Mart shares are up 0.5% in Friday afternoon trading and are up 49% over the past year. The Dow Jones Industrial Average DJIA, +0.77% is up more than 28% in the last 12 months.