GOLDMAN: 'Wal-Mart's cost of doing business is clearly rising' (WMT)

Sam Ro

"Wal-Mart's cost of doing business is clearly rising," Goldman Sachs analyst Matthew Fassler said in response to the company's earnings announcement..

Wal-Mart found success in retail by being the consumers' low-cost provider.

But in order to keep prices low, it had to squeeze it's own costs, which meant everything from pressuring vendors to keeping employee pay as low as reasonably possible.

However, it appears that a combination of employee protests, bad press, and perhaps a tightening labor market has forced the company's hand.

Earlier Thursday, Wal-Mart announced it would be giving a raise to around 500,000 employees.

While this may be good for Wal-Mart's employees, many of whom are actually customers, this means Wal-Mart's profit margins are likely to get squeezed.

"WMT’s cost of doing business is clearly rising, reflecting both self-imposed wage pressure and ongoing omnichannel investments, and earnings estimates likely to come under pressure with guidance, leading to a guarded response for WMT shares," Fassler said. "Our estimates and price target are under review pending today’s conference calls and further analysis."

Fassler currently has a Neutral rating on the stock.

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