Retailer loses off-clock-pay suit's appeal

Wal-Mart Stores Inc. cautioned investors Tuesday that its earnings per share for the fourth quarter could be pared by as much as 6 cents in the wake of a class-action lawsuit ruling in Pennsylvania.

A more than $150 million judgment against the world's largest retailer was upheld by the state Supreme Court in Philadelphia, affirming lower court rulings and a jury verdict issued in 2007. Wal-Mart, according to a 2006 lawsuit, did not pay employees what they were owed during meal and rest breaks between 1998 and 2006. Included as part of the class are about 187,000 current and former employees in Pennsylvania, each of whom are eligible for an average payout of about $802.

Wal-Mart is exploring its options, including a further appeal of the case, Braun/Hummel v. Wal-Mart Stores Inc., to the U.S. Supreme Court. A filing with the Securities and Exchange Commission on Tuesday said costs associated with the lawsuit would be "approximately $0.06 of diluted earnings per share from continuing operations" in the retailer's fiscal 2015 fourth quarter.

In its third-quarter earnings report in November, Wal-Mart estimated fourth-quarter earnings of between $1.46 and $1.56 per share. That estimate did not include the class-action settlement, the company said in its SEC filing. Wal-Mart's fourth quarter ends Jan. 31.

Despite the caution issued by Wal-Mart, senior analyst Brian Yarbrough at financial services firm Edward Jones, said the effect on the company's overall, long-term financial picture would be minimal. Wal-Mart, which has more than $6 billion in cash reserves, can write off the expense as a one-time charge.

"They'll take the charge and net it out," Yarbrough said. "Investors will not be impacted by it. It will be a hit to earnings, but it will be backed up as a one-time item.

"It's definitely not an ideal situation for them," Yarbrough added. "It just seems like there's always something negative for Wal-Mart right now."

A Court of Common Pleas jury initially awarded workers $78.5 million in for unpaid wages and off-the-clock work between 1998 and April 2006. Trial Judge Mark Bernstein awarded workers an additional $62.2 million in statutory liquidated damages, $10.2 million in interest for the time before the judgment was issued and $45.7 million in attorney fees.

An appellate court ruling vacated the attorney fees in 2011 and ordered that they be recalculated, cutting what at one time was a more than $180 million settlement. Attorneys fees in the case remain undecided.

Wal-Mart spokesman Randy Hargrove said the company disagrees with the Monday decision and continues "to believe that these claims should not be bundled together into a class-action lawsuit." Hargrove said the company has upgraded its timekeeping system and training to help employees better comply with its policies.

"Wal-Mart has had strong policies in place to make sure all associates receive their appropriate pay and break periods," Hargrove said, adding, "We are committed to our 1.3 million associates who work hard every day to serve our customers."

News that Wal-Mart expects to downgrade its earnings forecast for the fourth quarter comes a little more than a month after the retailer reported what was then a record-high share price after a promising third quarter. Wal-Mart stock closed at $82.94 on Nov. 13, following news that for the first time in seven quarters it had recorded an increase in U.S. same-store sales.

Wal-Mart reported $118.10 billion in revenue for the third quarter and $1.15 per share earnings for the three months ending Oct. 31. During the fourth quarter of fiscal 2014, Wal-Mart reported earnings per share of $1.60. Of 18 analysts surveyed by Yahoo Finance, estimates for the the fiscal 2015 fourth quarter ranged from $1.39 to $1.59.

Wal-Mart shares ended Tuesday's trading at $82.96 per share, down 98 cents.

The Pennsylvania Supreme Court's decision also puts Wal-Mart back in the news for its treatment of employees. Some outside groups have called for an increase to $15 an hour for hourly workers.

Recently, the company committed to giving about 6,000 of its 1.3 million U.S. employees a wage higher than the federal minimum wage of $7.25 per hour.

Randy Koontz, first vice president of investments for Pinnacle Wealth Management of Raymond James & Associates Inc. in Rogers, said that the lawsuit has been hanging over Wal-Mart for years. Wal-Mart has periodically updated investors on the class-action lawsuit and potential effect it could have on the company's earnings.

A Section on 12/17/2014

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