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These 10 companies would see their profits crushed if the minimum wage hits $11: Morgan Stanley

·Anchor, Editor-at-Large
·3 min read

 

A boost to a $15 an hour minimum wage missed the cut in the latest COVID-19 relief bill, but a move to a more palatable $11 an hour soon is possible, Morgan Stanley strategists think.

And it could take a big bite out of the profits at some well-known companies.

"Across Morgan Stanley's universe of 1,000+ North American stocks, we estimate that most firms would experience limited impact. At an $11/hr minimum wage, we estimate that ~94% of firms would see wage costs rise by less than 100 basis points," explained Morgan Stanley's team in a new report titled "A Higher Minimum Wage: What Does It Really Cost."

Outliers here, are consumer-focused services and retail businesses, Morgan Stanley notes.

"Within these groups, restaurants, food retailers, and department stores look more exposed, with operating profits potentially reduced by 3-10% on average," Morgan Stanley says.

Ten companies standout as having outsized risk to profits if the minimum wage goes to $11 an hour first and then $15 an hour. Unsurprisingly they are all restaurants, which for decades have relied on the minimum wage to feed their bottom lines.

Those at-risk restaurants identified by Morgan Stanley include:

  • Red Robin Gourmet Burger: -35.8% operating profit hit if minimum wage goes to $11/221.4% at $15

  • Shake Shack: -17.6%/-125%

  • BJ's Restaurants: -15.3%/-92.5%

  • The Cheesecake Factory: -13%/-80.8%

  • Brinker International: -10.9%/-58.7%

  • Bloomin' Brands: -10.2%/-56.9%

  • Texas Roadhouse: -9.9%/-53.6%

  • Darden Restaurants: -6.7%/-36.7%

  • Chipotle: -3.5%/-22.8%

  • Starbucks: -2.4%/-14.7%

In this May 6, 2020 photo, employees at a Starbucks Coffee store that is open for mobile orders wear masks as they watch a customer leave with an order in downtown Seattle. Nearly all retail stores and restaurants in the area are currently closed or operating under reduced levels of service due to the outbreak of the coronavirus and state-wide stay-at-home orders, which has led to thousands of workers losing their jobs or being furloughed. (AP Photo/Ted S. Warren)
In this May 6, 2020 photo, employees at a Starbucks Coffee store that is open for mobile orders wear masks as they watch a customer leave with an order in downtown Seattle. Nearly all retail stores and restaurants in the area are currently closed or operating under reduced levels of service due to the outbreak of the coronavirus and state-wide stay-at-home orders, which has led to thousands of workers losing their jobs or being furloughed. (AP Photo/Ted S. Warren)

The existing federal minimum wage is $7.25 an hour. It hasn’t been raised since 2009 despite across the board inflation in things like rent payments and medical costs.

But Biden has swung the door wide open on the minimum wage debate in the early days of his presidency, when he called for it to be included in the $1.9 trillion stimulus plan designed to fight the COVID-19 pandemic. Biden is expected to sign off on the stimulus plan Thursday afternoon.

No doubt Biden and progressives are hoping he could eventually ride the wave of those states passing a $15 an hour minimum wage legislation to enact it at the federal level as well.

In November 2020, Florida voters approved a ballot measure to gradually lift the minimum wage to $15 by 2026. The lowest paid workers in the state now earn $8.65 an hour, up from $8.56 an hour in 2020. It will move to $10 an hour on Sept. 30.

A total of 20 states raised their minimum wages on Jan. 1 as they march to the $15 an hour mark, Yahoo Finance Ben Werschkul reported.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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