Solid Earnings May Reflect Walmart’s Investment in Employees

Solid Earnings May Reflect Walmart’s Investment in Employees

Walmart posted a strong quarterly earnings report late last week, beating expectations and outperforming its main competitor, Target. CNBC’s Krystina Gustafson has the numbers:

The discount chain earned $1.07 a share in the fiscal second quarter, slightly lower than last year’s $1.08 a share. Revenue grew 0.5 percent to $120.85 billion. Analysts had expected Wal-Mart to report earnings of $1.02 a share on $120.16 billion in revenue, according to a Thomson Reuters consensus estimate. “We’re pleased with the positive momentum in our business. Our strategy in the U.S. is working as we delivered an eighth consecutive quarter of positive [comparable sales], and international also performed well,” CEO Doug McMillon said in a statement.

Indeed, same-store sales at Wal-Mart’s U.S. division grew 1.6 percent, an acceleration from the first quarter’s 1 percent lift. It was the division’s biggest same-sales gain since the quarter ended July 2012, when comparable sales grew 2.2 percent in that three-month period. Analysts predicted the world’s largest retailer would grow its domestic comparable sales by 1 percent during the latest quarter, according to a FactSet estimate.

Several factors play into this happy news for the world’s largest retailer, including an increase in online sales (which may soon see an even bigger boost following its recent acquisition of Jet.com) and investments in its grocery business. What these numbers also demonstrate, however, is that the company’s broad strategy announced last year of investing more in wages and training, including a raise for over one million store employees earlier this year, seems to be paying off. Back in July, Gustafson took a closer look at how this change was working out for Walmart:

Since its stumbles in 2013, Wal-Mart has been steadily building momentum, including seven straight quarters of domestic same-store sales gains. That includes a 1 percent lift in the most recent quarter, a time when many of its competitors flailed. And on Monday, the company’s shares rose to a 52-week high above $74.

Shoppers are also happier when they visit the retailer’s stores. For the past 84 weeks, customers have reported higher satisfaction on their stores’ cleanliness, speed and customer service through an internal survey. And while the investments have taken a significant bite out of Wal-Mart’s profits — during the first quarter, its domestic operating income slid 8.8 percent — experts say they could eventually turn into a positive for the company’s financials, as they may lead to lower turnover among its employees. That would result in fewer expenses tied to hiring and training.

“The economics can absolutely work out in Wal-Mart’s favor if it reduces turnover and increases the average tenure of employees,” said Kathy Gersch, executive vice president at Kotter International, a leadership consulting firm.

Critics, she adds, remain skeptical that Walmart’s new strategy is as employee-friendly as it looks, arguing that the training new hires must complete in order to receive a higher minimum wage is too long to benefit many employees in a high-turnover industry. On the other hand, Walmart seems to be taking other steps to improve conditions for its store employees: This month, it began experimenting with a new scheduling system that it hopes will improve customer service while also responding to employees’ demands for more predictable hours. At a moment when customers are increasingly choosing which companies to patronize based on how they treat their workers, Walmart may not be exempt from this trend.