Major retailers’ moves to boost the minimum pay of their U.S. workers gained an ally Wednesday in The TJX Cos. Inc. but failed to win the support of Target Corp.
Both companies reported improved fourth-quarter results, but TJX, the largest U.S. off-pricer, took a step that Target did not. Beginning in June, the Framingham, Mass.-based firm will lift the lowest wages paid to its full- and part-time U.S. store associates to $9 an hour and will move the base pay to $10 an hour for all associates with at least six months of service “sometime during 2016.”
The dollar figures match those laid out by Wal-Mart Stores Inc., last week — a move that on Wednesday drew the praise of President Obama.
Obama called Wal-Mart president and chief executive officer Doug McMillon from Air Force One on Wednesday and commended him for increasing wages for Wal-Mart’s employees, according to a White House readout of the call provided to pool reporters.
“The move, which will give half a million Wal-Mart employees a raise, is another prominent example of companies taking action on their own to do right by their workers, and comes alongside important actions to increase scheduling flexibility and access to training and career advancement,” the White House said.
“Seventeen states as well as cities and corporations large and small have acted to make a meaningful difference in the lives of seven million Americans since the President’s call to raise the federal minimum wage in his 2013 State of the Union,” the White House said. “But Congress can make that same difference in the lives of 27 million Americans if they follow the lead of businesses like Wal-Mart and [TJX] Companies, states across the country, and the will of the American people.
“The President again calls on Congress to do just that, helping to ensure that no American who works full time has to raise a family in poverty, and that every American who works hard has the opportunity to succeed.”
Retailers, especially Wal-Mart, have been under intense pressure from everyone from workers’ rights group to the Obama administration to raise minimum pay. The movement got a major boost a year ago when Gap Inc. said it would begin paying its staff at least $9 an hour.
But the movement to raise minimum wages is far from universal. The National Retail Federation, for example, last February expressed opposition to Senate legislation to do so, calling it “an antijob tax.” NRF president and ceo Matthew Shay last week lauded Wal-Mart’s move as “just another example of the power of the marketplace,” declaring it preferable to “government mandates that arbitrarily require businesses to implement politically driven policy.”
While not expressing strong opposition to higher wages, Target on Wednesday didn’t fall into the “pro” camp either. Instead, it ducked.
Questioned by an analyst about the hourly pay of associates, the retailer’s chief financial officer John Mulligan said the company doesn’t disclose the average wage for team members. “We’re confident we’re paying our teams appropriately,” he said. “We’re very focused on insuring that we have competitive wages and are developing our team members. Over 60 percent of team leaders started off as part-time associates.
“Overall, the [Fair] Minimum Wage Act hasn’t changed our view,” Mulligan added. “We don’t expect to see any material change next year.”
The Fair Minimum Wage Act would increase the national minimum wage to $10.10 an hour from the current $7.25.
In a statement, Target said, “While we don’t disclose the details of our competitive wage and benefits programs, it’s important to note that all of our stores pay more than federal minimum wage.”
While Wal-Mart said last week that its pay boost would affect 500,000 workers, about 40 percent of its U.S. workforce, TJX declined to venture into specifics, acknowledging that its global employee count ended the fiscal year at about 200,000.
Pressed for details on a morning conference call with analysts, Carol Meyrowitz, ceo of TJX, tied the boost in its minimum pay to the need to attract and retain talent and its ongoing efforts to improve the shopping experience for customers.
“We think it’s absolutely imperative that we keep pace and that we have the best talent,” she said in response to an analyst’s question. “We have very low turnover. We are definitely an employer of choice. But as with everything else, we want to be ahead of it, we want to keep the best of the best and we want to be able to bring the best of the best in.
“So whether it’s our stores, whether it’s our merchandise, whether it’s the home office, that’s our goal,” she continued. “So we’re doing what we think is best for our associates and our customers.”
The pay hike won’t come without its consequences. Scott Goldenberg, cfo, said that the combination of unfavorable currency translation, the employee pay upgrade and other initiatives would cut about 4 percent from TJX’s projected earnings in 2015. In preliminary guidance, these were pegged at between $3.17 and $3.25 a diluted share, shy of the $3.50 expected, on average, by analysts polled before the release of fourth-quarter and full-year results.
The cfo noted that the “investment in associates” would be the “largest component of the 4 percent” reduction and constitute more than half of it.
Meyrowitz said that once the 2016 pay hikes are in place, the impact of wage growth “will moderate from there.”
For associates in states or municipalities with statutory minimum wages above the levels outlined by Gap, Wal-Mart and now TJX, the increases won’t affect their paychecks. California, for instance, has a minimum wage of $9 that moves to $10 an hour next January, and San Francisco, at $11.05 an hour, will rise to $15 an hour by the summer of 2018. Several industries, such as supermarkets, are generally participants in union agreements that determine wage levels.
While Target didn’t jump on the higher-wage bandwagon in reporting its quarterly results Wednesday, it did join a growing group of retailers, including TJX, that, despite a challenging holiday season, managed to exceed their own guidance as well as the estimates of analysts.
Excluding results from the now-discontinued Canadian operations, net earnings rose 23.1 percent to $960 million from $780 million and adjusted earnings per share hit $1.50, above the $1.46 Wall Street consensus estimate and the year-ago level of $1.22. Target’s most recent guidance was for adjusted EPS of between $1.43 and $1.47.
Quarterly revenues were up 4.1 percent to $21.75 billion from $20.89 billion in the comparable 2013 quarter. Comparable sales rose 3.8 percent, reflecting a 3.2 percent increase in transactions.
Because of Target’s struggles earlier in the year in the aftermath of its holiday 2013 security breach, full-year EPS fell 2.6 percent to $4.27 from last year’s $4.38.
In the quarter, Target realized a pretax loss of $5 billion related to the discontinuation of its operations in Canada, which resulted in a reported quarterly loss of $2.64 billion, or $5.59 loss per share.
Despite Target’s bullish outlook, first-quarter guidance came in below analysts’ estimates. Target forecast profits of 95 cents to $1.05 per share, compared to $1.02 per share in last year’s first quarter, while analysts were looking for an average of $1.06 per share.
The reported loss for the year was $1.64 billion, or $2.58 a diluted share, while sales rose 1.9 percent to $72.62 billion from $71.3 billion in 2014. Full-year comparable sales grew 1.3 percent versus a decline of 0.4 percent last year.
Health care, beauty, apparel and home, Target’s signature categories, grew at a faster clip than other areas of the store. Digital sales in the quarter grew 30 percent. Brian Cornell, chairman and ceo, said that, following its holiday free shipping offer on digital orders — which created a surge in traffic and conversion — the company is reducing the digital order threshold for free shipping from $50 to $25. “Consumer confidence has certainly improved,” Cornell said. “Lower gas prices are certainly helping the industry overall. We also made significant strides from a merchandising and marketing standpoint and the execution inside the stores. We feel good about the traffic.”
With the data breach of 2013 and the painful decision to exit Canada behind it, Target is looking ahead to opening 50 stores in 2015. More than half will be new formats, including Target Express and City Target. Cornell said the smaller stores will enable the company to offer localized assortments in critical urban markets.
Shares of Target rose 0.3 percent to $77.15 after hitting a 52-week high in midday trading.
At TJX, quarterly net income rose to $648.2 million, or 93 cents a diluted share, ahead of the 90 cents of EPS anticipated, on average, by analysts and 11.3 percent above the $582.3 million, or 81 cents, registered during the final quarter of 2013.
Revenues were up 6.3 percent to $8.3 billion from $7.81 billion, as comparable-store sales rose 4 percent, better than the 2013 quarter’s 3 percent increase or the full-year gain of 2 percent. The analysts’ consensus estimate was for revenues of $8.26 billion.
Meyrowitz noted that the higher comps “were almost completely driven by customer traffic.”
In the quarter, revenues rose 5.4 percent to $5.29 billion at Marmaxx, incorporating TJ Maxx and Marshalls; 18.1 percent at HomeGoods to $1.03 billion; 2.7 percent at TJX Canada to $788 million, and 3.9 percent at TJX Europe to $1.2 billion.
Gross margins added 60 basis points to move to 28.2 percent of sales from 27.6 percent a year ago.
TJX said it expected first-quarter earnings of between 64 and 66 cents a diluted share, versus the consensus estimate of 72 cents. Comps are expected to grow between 2 and 3 percent. Guidance for the year of earnings of $3.17 to $3.25 a share was also below earlier analysts’ estimates of $3.50, reflecting the 4 percent drag cited by Goldenberg.
For the full year, earnings were up 3.6 percent to $2.22 billion, or $3.15 a diluted share, while revenues advanced 6 percent to $29.08 billion from $27.42 billion.
TJX shares rose 3.3 percent to $69.38 in Wednesday’s trading session and, like Target’s stock hit a 52-week high, of $69.87, in midday trading.
Meyrowitz said, “In 2015, we are taking a prudent approach to planning our earnings per share growth. We are continuing to plan comp sales increases conservatively while we simultaneously strive to surpass our goals. Further, we will continue to reinvest in our growth initiatives for today and the future, and we are making additional investments in our store associates to maintain our focus on offering our customers an excellent shopping experience.”
She added that, “like other major international retailers,” plans for the new year reflect currency headwinds.
TJX will enter its seventh country, Austria, this spring and also plans to launch stores in The Netherlands later in the year.
Stifel Nicolaus analyst Richard Jaffe noted that, unlike many retailers outside the off-price sector, TJX could stand to gain from the aftermath of the West Coast port crisis. “Market disruptions are good for TJX and we believe TJX could benefit from the previous bottleneck of deliveries,” he wrote in a research note. “As traditional retailers cancel late deliveries it creates an opportunity for off-price retailers to capitalize on the plethora of merchandise available in the marketplace at very favorable prices.”