Wal-Mart (WMT) Stock Up on Plans to Create Jobs in the U.S.

Shares of Wal-Mart Stores, Inc. WMT increased 1.92% yesterday, after the discount retail behemoth announced its plans to create 10,000 U.S. jobs this year. This comes a week after The Wall Street Journal reported that Wal-Mart was preparing to cut hundreds of jobs by the end of January.

The move to create jobs came on President-elect Donald Trump’s insistence on hiring more U.S. workers. In fact, Trump has repeatedly criticized U.S. companies across industries for not keeping jobs in the country.

The new employees, including hourly workers, department managers and supervisors, will likely be employed across the 59 new stores announced in October as part of a $6.8 billion capital spending plan for the fiscal year beginning in February. The new stores in the next fiscal year will create about 24,000 additional construction jobs.

Wal-Mart plans to open fewer stores this year. Instead, it intends to add jobs for e-commerce activities like online grocery pick-up. Wal-Mart also said that by July, it would open 160 training academies, adding to the current 40. More than 225,000 workers will receive up to six weeks of specialty training and graduate from the academies in the coming fiscal year.

Like Wal-Mart, companies like General Motors Co GM and Amazon.com Inc. AMZN have also announced plans to add U.S. jobs. On Tuesday, General Motors announced plans to invest an additional $1 billion in its U.S. factories and move some production from Mexico that would retain 1,500 jobs. Last week, Amazon announced that it will create more than 100,000 jobs in the U.S.

Though creating jobs will benefit U.S. citizens, Wal-Mart, the biggest private employer, will continue to reel under expense burden due to increasing e-commerce spending and rising wages for employees.

Wal-Mart is making huge investments in e-commerce initiatives to compete with the biggest online retailer, Amazon. After acquiring U.S.-based e-commerce company Jet.com last year, Wal-Mart announced the acquisition of ShoeBuy.com for $70 million last week. The deal will help Wal-Mart’s Jet challenge Zappos.com, Amazon’s footwear site.

Wal-Mart also pledged to invest $2.7 billion on raising employees’ wages and provide them with additional training in fiscal 2017. Under this initiative, the company increased its minimum wage to $9 an hour in Apr 2015 and to $10 per hour in Feb 2016. The initiative of paying higher wages is expected to help reduce turnover and increase retention, but will also raise expenses of the retailer. Higher labor costs, along with the company’s efforts to overhaul its stores and invest in its online operations, will weigh on earnings.

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise

 

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise | Wal-Mart Stores, Inc. Quote

Bentonville, AR-based Wal-Mart, holding a Zacks Rank #4 (Sell), has already been grappling with near-term headwinds. Increased competition from traditional and online players and a slowdown in international operations, along with a strong dollar, are hindering sales.

Industry-wide weakness in the grocery/supermarket business is also impacting Wal-Mart’s operations. The industry is struggling due to food deflation, stiff competition, aggressive promotional environment and waning store traffic. These headwinds have largely impacted major food grocers like Wal-Mart, The Kroger Co., Whole Foods Market, Inc., SuperValu, and Sprouts Farmers Market.

Over the past two years, the stock has exhibited a bearish run on the index. Notably in the said period, the stock has declined by 21.2% and underperformed the Zacks categorized Retail-Wholesale sector, which showcased growth of 9.4%. Notably, the broader Retail and Wholesale sector is also placed at bottom 19% of the Zacks classified sectors (13 out of 16).

Key Pick

A better-ranked stock in the broader retail sector is Best Buy, Inc. BBY, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy has an expected earnings growth rate of 11.87%.

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