Three retailers, Wal-Mart Stores, Inc. (NYSE:WMT), Target Corporation (NYSE:TGT), and Amazon.com, Inc. (NASDAQ:AMZN), rule the retailing world with their low prices, convenient locations and customer centric experiences. However, one company rules with its sheer size giving it superior purchasing power.
Wal-Mart Stores, Inc. (NYSE:WMT) generally lies at the center of the modern day shopping center and draws the increasingly frugal customer from miles around to its low priced merchandise. Someone once told me they “have no choice but to go to Wal-Mart Stores, Inc. (NYSE:WMT) because they are cheaper.” Wal-Mart’s nearly 10,800 stores give it an economy of scale that allows it to negotiate for the lower prices that draw the huge crowds.
Wal-Mart Stores, Inc. (NYSE:WMT)’s $469 billion in revenue exceeds Target Corporation (NYSE:TGT)’s revenue of $73 billion and Amazon.com, Inc. (NASDAQ:AMZN)’s $61 billion. The company’s net profit margin increased 9 basis points for the year. Wal-Mart sits on $7 billion in cash; nearly 10 times that of Target Corporation (NYSE:TGT) but less than Amazon’s $11 billion. Wal-Mart decreased its long term debt 13% to $38 billion over the past year. Its long term debt to equity ratio stands at 47% down from 58% the same time last year.
Wal-Mart Stores, Inc. (NYSE:WMT)’s large size makes it more difficult to manage and create growth than, say, a smaller company with a chain of 300 stores. Shareholders can hardly expect sustainable robust expansion over the long term. Future growth in profitability will come from productivity gains such as supply chain and labor efficiencies, emerging markets penetration and unit growth in its new smaller store format. According to one article, two-thirds of the American population lives within five miles of a Wal-Mart.
Wal-Mart shareholders endured a series of public relations mishaps in 2012 from foreign corruption charges to striking workers. In Wal-Mart’s last earnings call, it promises to clean up its act on foreign corruption issues. Too bad it didn’t do that before spending $157 million in legal and other fees pertaining to the matter. Regarding labor relations, it plans on hiring 100,000 honorably discharged veterans.
The operating income of Wal-Mart’s Sam’s Club declined 4% in its most recent quarter due to “price investment” or discounting of merchandise to drive volume–however, for the full year, its operating income increased 6%.
Target Corporation (NYSE:TGT)’s newly added grocery department and upscale look provides an alternative to Wal-Mart. Target’s loyalty rewards programs drive traffic to its stores. According to Target’s latest earnings call, its Red Card holders frequent the store at more than twice the rate of people without the card. Customers with Target’s Pharmacy rewards card shop three times more than those without it.
Target Corporation (NYSE:TGT) plans to expand heavily into Canada by opening 124 stores in the country before Christmas, according to guidance given in Target’s latest earnings call.
Target’s profit margins declined 10 basis points last year. Target’s collection of stores just surpasses 1,800, a far cry from Wal-Mart’s 10,800. Target’s long term debt to equity ratio increased 2% last year and stands at 89%, versus 87% the same time last year.
As of this writing, Wal-Mart and Target pay out a reasonable 40% and 41%, respectively, of their free cash flow in dividends, and currently yields 2.50% and 2.10%, respectively.
Amazon.com, Inc. (NASDAQ:AMZN) generates plenty of cash–the company’s operating cash flow increased 7% over the past year. Its $11 billion cash and investments balance constitute a cash to stockholder’s equity ratio of 140%. Capital expenditures ballooned to $3.8 billion last year due to investments in technology and fulfillment networks. Amazon’s CEO Jeff Bezos wants to put the customer first, which explains the increased investment in fulfillment centers to shorten the delivery time to the customer.