Costco hikes entry-level wages for first time since 2007

NEW YORK — Costco is raising entry-level wages for its hourly workers for the first time since 2007, as the warehouse club operator fights to compete in a tighter labor market.

The company told investors in an earnings call Thursday that it will pay workers $1.50 more per hour in the U.S. and Canada effective this month. Workers will now earn at least $13 or $13.50 per hour, up from a minimum of $11.50 or $12 per hour. The move will squeeze profits for the third quarter and beyond.

The steps come as other major retailers have been increasing the minimum wages for their entry-level workers. Wal-Mart Stores Inc., the nation’s largest private employer, increased wages last month for more than 1.2 million workers. It’s part of a $2.7 billion investment over two years in its workforce that also includes better training. Entry-level Wal-Mart workers now get paid at least $10 per hour.

With an improving economy, it’s becoming tougher to maintain workers who can easily jump to another job. Craig Rowley, global leader of consultancy Hay Group’s retail practice, estimates that the turnover rate— the percentage of part-time workers who leave within a year— is now 67 percent for the retail industry. That’s up from 50 percent during the recession.

Wal-Mart has already seen sales perk up in its U.S. business as customer experience improves in the store. But those investments are also squeezing profits. Kohl’s last month also referred to its increase in wages putting pressure on profits.

Costco Chief Financial Officer Richard Galanti told investors in the call that the increase will hurt its earnings for the current quarter by a penny per share, and 2 cents per share each quarter for the following three quarters.

Galanti said he wants to offer top salaries at all levels, noting that Costco pays premium wages at the top of the scale. For entry-level workers, he described the work as tough.

“You’re on your feet, you’re lifting cases, you’re pushing carts at these entry-level jobs,” Galanti said. “And so we thought it was time to do it.”

Costco’s pay is considered one of the highest in the retail industry. Hay Group estimates that the hourly pay averages for the industry is $9.26 for cashiers and low-level retail sales staff.

Meanwhile, Costco reported late Wednesday its fiscal second-quarter profit fell nearly 9 percent as costs rose.

Sales, however, did rise, the company said late Wednesday. Sales at its stores open at least a year, considered an important measure of a retailer’s health, rose 1 percent. The gain came from its roughly 490 U.S. stores, with sales rising 3 percent. They fell 7 percent in Canada and fell 3 percent at its other international stores.

The Issaquah, Washington, company has nearly 700 total stores around the world.

Rising costs took a bite out of its profit. Merchandise costs rose 2.4 percent to $24.5 billion and its other costs rose 6 percent to $2.8 billion.

Costco reported net income of $546 million, or $1.24 per share, in the quarter ended Feb. 14, compared with $598 million, or $1.35 per share, in the same quarter the year before. Analysts expected earnings of $1.28 per share, according to FactSet.

Revenue, which includes sales and membership fees, rose 2.6 percent to $28.2 billion in the quarter, below the $28.5 billion analysts expected, according to FactSet.

Shares of Costco Wholesale Corp. fell $1.19 to $151.60.

BY ANNE D’INNOCENZIO and JOSEPH PISANI, AP Business Writers