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Monday, August 07, 2006

Wal-Mart: Raises For Everyone

Stocks: (WMT)

Wal-Mart announced today that it will raise the starting salaries for new associates in 1,200 stores in the US, and will give merit raises to other employees when justified. Employees not currently paid at the rate of the new floor will get increases. It is probably a safe bet that 100,000 employees will get some form of increase due to the new move.

With Wal-Mart's same-store sales only rising at the rate of inflation this move may squeeze the company's margins in its home market. It won't break the bank, but when it is taken with the news of unionization in China and the company's withdrawal from Germany, it is part of a pattern that is likely to hurt operating earnings, perhaps just enough to get noticed when it is all taken together.

Gross margin has already dropped to 76.4% in Q1 compared with 77% a year earlier, and the company has warned that higher gas prices are hurting store traffic. Any other increase in expenses is clearly not welcome.

It is widely known that Wal-Mart is being hurt by slowing sales. The company's stock is at $44.80, well off its twelve month high of $50.87. If sales don't improve more rapidly, margin is all the company has to talk about if it wants the share price to move back up.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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