As per media reports, retail giant Wal-Mart Stores Inc. (WMT) announced that it is eliminating 2300 employees at its Sam’s Club warehouse division in an effort to streamline its business structure. The job cuts have been aimed at assistant managers and some hourly workers like phone attendants.
Wal-Mart assured that the workers receiving notices will continue to get paid for the next 60 days. In the two-month time period, the workers may apply for a job at Wal-Mart or in other areas of Sam's Club operations. On failing to secure a position, they will receive severance after 60 days.
The decision to lay off employees came on the back of the company aiming to streamline management at clubs and improve operations. The company believes that rightsizing the number of managers per club in accordance with revenues earned will well-position the company for future growth.
Sam’s Club pulled in $14.1 billion in sales during its third quarter fiscal 2013 ending Oct 25, up a paltry 1.1% from the prior-year quarter. Sam’s Club comps grew 1.1% in the quarter as positive traffic increase was offset by a decline in average ticket. Same-store sales growth was within the guidance range of flat to 2.0%, but lower than 2.7% recorded in the prior-year quarter due to a tough retail sales environment.
The company expects the challenging sales environment and currency headwinds to continue to hurt fourth quarter fiscal 2014 results as well. For the fourth quarter of fiscal 2013, Sam’s Club comps are expected to range between flat and 2%, lower than 1.8% in the prior-year quarter. However, Sam’s Club remains on track to open 15 new clubs in fiscal 2014, adding to its current total of 630.
Wal-Mart is not the only retailer to cut its workforce. It follows a string of announcements from other retailers which are trimming their head count. Last week, specialty retailer Target Corp. (TGT) announced that it would lay off 475 employees worldwide to reduce costs. In early January, Macy’s Inc. (M) and J. C. Penney Co., Inc. (JCP) also announced layoffs as part of their cost-cutting initiatives. Macy’s said it would cut 2,500 employees from its U.S. workforce; J.C. Penney indicated that it would close 33 stores and remove 2,000 positions.
The layoffs announced across the board in the retail sector were a function of a weak holiday season sales. We note that the holiday season has been a particularly tough one for many retailers like Wal-Mart because of the competitive promotional environment.
These retailers struggled in vain to lure budget-constrained consumers. They also trimmed their forecast due to lower-than-expected sales and margin pressure. Wal-Mart lowered its fiscal 2014 earnings guidance in view of a challenging sales environment and currency headwinds. Currently, Wal-Mart holds a Zacks Rank #4 (Sell).