Costco Reports Lower Profit After Raising Its Minimum Wage to $16 an Hour

By Adriaan Brits Friday, March 5, 2021

Costco Wholesale Corp, a Washington-based retail company, reported lower-than-expected earnings for its Q2.

Costco Wholesale storefront.

Higher Costs Hit Profit

Costco said it earned $2.14 per share in Q2 — a miss on analysts’ estimates of $2.42 per share. A year ago, the company reported earnings of $2.10 per share.

The latest quarterly report represents a negative surprise as the retail business reported earnings of $2.29 per share for its Q1, to beat the $2.04 per share expected from the market analysts then.

Business revenue came in at $44.77 billion to top the $43.78 billion expected from Wall Street. This is higher than the $39.07 billion the company reported a year ago. As expected, digital sales soared 75.8% on a year-over-year (YOY) basis.

The profits have been hurt by higher costs on employee benefits as the retail business decided to reward staff for their work through the COVID-19 pandemic.

Last week, Costco announced that the company is raising its minimum wage to $16 an hour for its US store workers.

“Two years ago, we moved our starting hourly wage to $15 everywhere in the US. Effective next week, the starting wage will go to $16,” CEO of the company Craig Jelinek said during a Senate budget committee hearing last week.

The minimum wage increase came a year after the company decided to give a $2 an hour premium to its employees to help them get through the pandemic.

“As we approach the one-year mark of this extra pay, we will limit the temporary premium, but convert some of the premium to a permanent increase by raising each step on hourly wage scales,” said Jelinek.

Costco is known for having a loyal workforce with more than 60% of its staff averaging five years or more of service for the company. The retailing business employs over 450,000 staff, out of which around 180,000 are located in the United States (US).

Last month, Walmart, the biggest single employer in the country, decided to raise wages for its 425,000 staff to average above $15 an hour. The minimum wage will remain at $11 an hour.

Target, another major retail business, hiked wages to a $15 an hour minimum in July 2020.

Summary

Costco presented lower-than-expected Q2 earnings as profits were hurt by increased spending on employee benefits. On the other hand, business revenues for the quarter beat market estimates as digital sales continue to surge at a rapid pace.

About the Author


Headshot of Adriaan Brits

An analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in advanced analytics and media.

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