Retailer Target (TGT 58.63, -0.36, -0.6%) announced some good news for its employees today, which in turn should generate some good P.R. for the company. That good news is an increase in its minimum hourly wage for all team members to $11.00 in October, and a commitment to getting its minimum hourly wage to $15.00 by the end of 2020.
The good news for shareholders is that Target still expects to meet its third quarter and full-year adjusted earnings guidance despite the pay increase, which will also be applicable to the more than 100,000 hourly employees hired for the holidays season.
The new pay policy means Target's minimum hourly wage is higher than the minimum hourly wage in 48 states and comparable to what has been adopted in the states of Massachusetts and Washington.
Target's adjusted earnings guidance ranges for the third quarter and full-year are relatively wide, so the question on investors' minds today is where Target's earnings will ultimately fall within those ranges, which are $0.75 to $0.95 for the third quarter and $4.34 to $4.54 for the full-year 2017.
The retail environment is extremely competitive from a pricing standpoint, so it seems that Target will either have to cut costs elsewhere, sell more higher-margin products, or see stronger-than-expected sales activity to be in the upper end of its guidance ranges, which presumably did not incorporate the pay increase when it was provided in mid-August.
Target reiterated that it expects comparable sales growth in the third and fourth quarters to be similar to what it experienced in the first and second quarters and that its full-year comparable sales will be in a range around flat, plus or minus 1 percent.
Shares of TGT are down 19% year-to-date after having made a 21% move off their June low. The early response from shareholders to the company's hourly wage announcement has been tepid at best.