McDonald’s warns ‘trend’ toward higher wages may slam margins

February 25, 2015, 6:41 PM UTC
Photograph by Kiyoshi Ota — Bloomberg via Getty Images

Looks like Wal-Mart Stores (WMT) set an uncomfortable precedent for many of its peers in retail and in fast-food when it gave 500,000 workers a raise last week.

McDonald’s, (MCD) a frequent target of campaigns for a $15 minimum wage in the United States, said in its annual report on Wednesday that the pressure for higher pay may take a bite of out of its profits.

Wal-Mart, which employs 1.4 million U.S workers, said last week it would raise its entry wage to $9 this year and $10 next year in a bid to improve customer service, retain workers and offer people better chances at a career track. On Wednesday, T.J. Maxx and Marshalls owner TJX Cos (TJX) also said it would raise its starting wage to $9 this June. (Target (TGT) executives didn’t address this issue directly on a call with Wall Street analysts, but did say that its average wage was higher than that in any case.)

In addition to campaigns by labor activists, the tightening job market is putting upward pressure on wages. And that, McDonald’s said, will hurt its bottom line.

“The trend toward higher wages and social expenses could have a negative impact on the margins of our Company-owned restaurants. Additionally, economic action, such as boycotts, protests, work stoppages or campaigns by labor organizations, could adversely affect us or the franchisees and suppliers that are also part of the McDonald’s System and whose performance has a material impact on our results,” McDonald’s.

Fast food workers in some 190 U.S. cities walked off the job on early December, seeking $15 an hour in pay, with McDonald’s the most visible target. The pressure on the $15 wage began in 2012. In some cities, that has become the standard: Seattle passed a $15 minimum wage in June, while San Francisco’s minimum wage is set to meet that mark in 2018. Los Angeles is looking into raising its minimum wage to that amount, and Chicago has passed a law that will raise its minimum wage to $13 in 4 years from now.

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