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Target (TGT) Hikes Minimum Hourly Wage, Reiterates Guidance

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Target Corporation (TGT - Free Report) recently announced plans to increase the minimum wages of its team members to $11 an hour, effective from October. The company also stated that the minimum hourly wages for all team members will be raised to $15 by the end of 2020. The move will benefit employees with higher wages, right before the holiday season. Encouragingly, the raised wages will also benefit around 100,000 temporary employees hired during the holiday season.

Continued Investment in Workforce

The labor market conditions in the United States have been steadily improving with declining unemployment rates and frequent wage hikes by firms across different industries.

Target previously raised its minimum hourly wages in 2016 to $10 from $9 in 2015, following suit of other giant retailers who raised their pay to attract workers amid a highly competitive market scenario. The current wage hike by Target is expected to force other retailers such as Wal-Mart Stores, Inc (WMT - Free Report) , one of the largest domestic employers, Costco Wholesale Corporation (COST - Free Report) and Gap Inc. (GPS - Free Report) to raise their minimum pay in order to remain competitive, especially during the ongoing holiday season hiring.  Target’s wage hike also exceeds the minimum federal wage rate of $7.25.

The increase in minimum wages is in line with Target’s strategic store-growth policies, that focuses on retaining efficient employees and attract more workers as the company progresses with its store remodeling and expansion initiatives. Moreover, Target has always remained committed toward investing in its workforce. In addition to a healthy pay, the company also provides a number of other benefits such as discounts on select merchandise at Target stores, health and wellness services as well as financial resources for eligible members.

Reiterates Guidance

Despite a wage hike, which will lead to higher expenses, Target has reiterated its upcoming third quarter and full-year guidance. This indicates that the current hike will not affect the company’s operating results.

Target continues to remain consistent with its sales growth expectation, to be in the range of flat to plus or minus 1%. Adjusted earnings for the third quarter are also continued to be expected in the range of 75 cents to 95 cents per share, while full year earnings are anticipated in the range of $4.34 to $4.54.

Though the wage hike will raise the expense burden on the retailer, we believe the move will keep workers content and also help improve customer service. This will ultimately encourage shoppers to spend more.

Share Price Performance

The company’s continued investment toward improving store formats, customer-friendly initiatives and enhancing online shopping facilities are seen to bode well with investors. Shares of this Zacks Rank #3 (Hold) company have increased 9.8% over the past six months, as against the industry’s decline of 0.3%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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