Home Depot said it will increase pay and benefits for front line hourly staff by $1 billion this year, another sign of a tighter labor market and rising wages across the US economy.
The home improvement retail chain did not detail how much of a pay raise the average hourly worker will receive. It pays at least $15 an hour as a starting wage in every market, with many markets paying a higher starting wage, according to CEO Edward Decker. And he said the company increased wages for every single front-line worker, both starting pay and more senior workers, as it sought to increase the average tenure of its staff.
“We hope to improve retention through this. That’s why we call it an investment,” said Decker in remarks to investors. “It’s going to improve the customer experience. If we take care of our associates, they take care of the customer and everything takes care of itself.”
The company said in addition to change in pay and benefits, it is creating new management positions on the stores’ floors.
The increased pay “is just one component of the associate investment story,” said Ann-Marie Campbell, Home Depot’s executive vice president, on the investor call. “The net result of all this [new management positions] is both an improved customer and associate experience while also creating new career paths for our associates.”
The company had 491,000 employees worldwide a year ago, according to the most recent figure disclosed in a company filing. About 92% of staff are hourly workers, with 437,000 of those in the United States. But due to turnover and seasonal staffing needs, it had to hire 200,000 workers during the course of the fiscal year.
The company disclosed the plan for increased compensation Tuesday when reporting record earnings for the fiscal year that ended in January. Earnings for the year reached $17.1 billion, up 4% from a year earlier, while net sales also rose 4% to $157 billion. Quarterly earnings per share of $3.30 were 2 cents better than forecast by analysts surveyed by Refinitiv.
The company’s shareholders will also benefit from its successful year as it announced it is raising its dividend by 10%, or about $780 million. The company also said it will use excess cash to increase share repurchases, though it did not set a target on how much it would spend on those purchases.
But the company gave guidance for the year ahead that was somewhat disappointing for investors. It said it expects revenue will be little changed in the year ahead, and earnings per share will be down by a mid-single-digit percentage. Analysts had been forecasting a narrow increase in earnings per share for the year.
The company said that it isn’t taking a hit from the weakness in the home sale market that is resulting from higher mortgage rates. In fact CFO Richard McPhail said the company could be benefiting from the current state of the housing market, as homeowners have more incentive to fix up their current homes rather than move.
“As you know, over 90% of US homeowners either own their homes outright or have fixed rate mortgages under 5%,” McPhail said. “And so that incentive to sell and move to a higher rate mortgage just isn’t there. And in fact, the incentive is really there to improve in place.”
Shares of Home Depot (HD) slid 5% in morning trading on the report.