Off-price retailer Ross Stores Inc. said March 6 that it is raising its employees' minimum wage to $11 an hour, prompting its executives to discuss the rising cost of labor during a March 6 analyst call.
The retailer also said it is making other investments in wages and benefits, including one-time bonuses for some employees and improvements to its paid leave programs. Ross president Michael O'Sullivan said the retailer wants to continue offering competitive wages to retain its employees. The retailer has a workforce of more than 82,000 associates. Both general merchandiser Target Corp. and rival off-price retailer TJX Cos. Inc. have flagged rising wages and higher employee compensation costs during recent earnings calls.
"We're currently happy with the hiring pipeline and our ability to retain existing associates; we recognize the labor market is pretty dynamic and competitive. And there's no doubt with the stressing economy as well as the effective tax reform that those things are going to continue to push out wage rates," O'Sullivan said. "It is important for us to keep pace with those changes."
The U.S. federal minimum wage is $7.25 an hour, but many states offer significantly higher minimum wages. Ross executives said the company already pays some of its employees $11 an hour but declined to quantify how many. Ross CFO Michael Hartshorn said the company's California employees are earning $11 an hour and that the state comprises 20% to 25% of its store base of about 1,600 locations.
Hartshorn said the wage increases are already factored into the California-based retailer's guidance for the year ending Feb. 2, 2019. The company said it expects fiscal 2018 earnings per share between $3.86 and $4.03, up from $3.55 for the year that ended Feb. 3.
The CFO also spoke about rising freight costs, a subject TJX and other retailers have addressed as well. The CFO said the company is experiencing higher market rates as it faces a shortage of truck drivers and diesel prices hitting a 3-year high in the fourth quarter.
"Our expectation is we would continue to see, I would say, similar pressure to what we saw in 2017, and we built that into our guidance," Hartshorn said. The CFO said freight costs for the full year ending Feb. 3 accounted for 25 basis points on its operating margin of 14.5%.
In terms of future store openings, executives said the off-price retailer still has room to grow its physical store footprint. Hartshorn said the company plans to open about 100 new stores this year. O'Sullivan said the chain has the longer-term potential to reach 2,500 stores across its Ross and dd's Discounts banners.