Costco is raising entry-level wages — the first increase in nine years — as its competitors also raise wages.
Costco is raising the starting wage of its entry-level workers — the first time it’s done so in nine years.
The $1.50 wage increase is starting this month, the company said during a conference call Thursday to discuss second-quarter financial results that fell below Wall Street expectations.
Since 2007, the company’s entry-level wage in the U.S. and Canada has been $11.50 to $12 an hour, said Richard Galanti, Costco’s chief financial officer.
The company is increasing that to $13 to $13.50.
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“We thought it was time to do it,” Galanti said, saying that other companies are raising pay at the bottom of the scale and “we want to be premium at all levels. … We think this will help and it’s important to do.”
Costco reviews its pay scales every three years and typically increases the wages of those making top-scale wages each year in March. About 60 to 65 percent of Costco’s employees make top-scale wages, which are in the $23 range, Galanti said.
It takes typically a full-time employee about 4½ years to rise from entry-level wages to making top-level wages, he added.
This year, the company decided to raise the wages of those at the bottom of the scale as well.
The wage increases will result in costs of about a penny a share in the current quarter and about 2 cents a share for the next three quarters.
Costco is doing so at a time when competitors are also raising wages.
Wal-Mart, for instance, implemented a previously announced wage increase last month, with all associates hired before Jan. 1 earning at least $10 an hour — up from the $9-an-hour wage bump implemented last year. New entry-level associates start at $9 an hour and move to $10 after completing a training program.
Costco is raising entry-level wages even as it reported second-quarter financial results Wednesday that fell below Wall Street expectations for the second quarter in a row.
The disappointing results, which Costco attributed to a strong U.S. dollar and the transition to a new partner for its co-branded credit card, among other factors, pushed Costco stock down $1.19, or 0.8 percent, to close Thursday at $151.60.
For Costco’s second quarter, ended Feb. 14, the Issaquah-based warehouse giant reported net income of $1.24 per share, down from $1.35 in the same period a year ago. Wall Street analysts had expected $1.28 a share.
Last year’s second-quarter earnings, though, were given a boost by two income-tax items that, if excluded, would have resulted in earnings of $1.25 a share, the company said.
Profit for the quarter was $546 million, down 8.7 percent from the year-ago quarter.
The weakness of foreign currencies hurt Costco. The currencies in all countries where Costco operates weakened against the dollar, but especially so in Canada, Mexico and South Korea, Galanti said.
That resulted in foreign earnings for the quarter, when converted into U.S. dollars, to be lower by $32 million, or 7 cents per share, compared with year-ago exchange rates, Galanti said.
Costco is also in the midst of transitioning from longtime credit-card partner American Express to a new company — Citigroup — which will become the exclusive issuer of its co-branded credit cards. Visa will replace Amex as Costco’s credit-card network.
Citigroup earlier this week announced that it had reached a deal to purchase the portfolio from American Express.
Because of the change in companies, sign-ups for the co-branded cards, which also act as Costco membership cards and come with a rewards program, stopped several months ago.
That resulted in a negative impact of $18 million pretax, or 3 cents per share, in the second quarter. The transition will continue to have an impact into the third quarter and a little into the fourth, Galanti said.
The company expects to have co-branded credit cards in the hands of existing customers in May and to go live with the transition in June, he added.
Lower gas prices and costs associated with the company’s efforts to modernize its technology also affected the bottom line, the company said.
Revenue for the second quarter also fell short of analysts’ estimates of $28.42 billion. Costco reported total revenue, which includes both net sales and membership fees, of $28.17 billion, an increase of 2.6 percent from $27.45 billion in the same period last year.
Excluding membership revenue, net sales rose 2.6 percent to $27.57 billion from $26.87 billion in the same period last year.
Membership fees contributed $603 million to total revenue.
Analyst Michael Lasser of UBS said in a research note that membership-fee revenue came in above his expectations.
And “while its EPS (earnings per share) came in below expectations, we don’t think these results suggest anything has fundamentally changed at the retailer,” he said.
Costco said it may also look at increasing its membership fee — something it does every five to six years. The last time the membership fee was increased was January 2012.
The company didn’t specify when it might be doing so this time, though Galanti said “logic would dictate we wouldn’t do anything during the (credit-card) transition” period.
Second-quarter sales in stores that were open last year rose 3 percent in the U.S. but dropped 7 percent in Canada and 3 percent in other countries. Companywide,comparable sales rose 1 percent.
Excluding the impact of lower gas prices and foreign-exchange fluctuations, Costco’s comparable sales were up 4 percent in the U.S., 10 percent in Canada, 6 percent in other countries, and 5 percent overall.