Wal-Mart: A Black Friday Winner?

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This year’s Thanksgiving weekend saw record sales across a vast number of metrics including total sales, online sales and, sadly for many, Thanksgiving Day sales. One beneficiary of the spending glut was discounter Wal-Mart (NYSE: WMT), which saw an estimated 22 million shoppers enter its stores. While these numbers appear very attractive on first inspection, understanding how they translate into both sales and profits is critical in measuring how the retailer kicked off this year’s holiday season. Ultimately, the company seems to be off to a very strong start for this critical period, but as shoppers become savvier in their approach, it may be premature to declare a victory.

By the Numbers: The Industry

The four-day Thanksgiving weekend saw spending surge by nearly 13% as compared to last year. This year’s total reached $59.1 billion in shopping activity as compared to $52.4 billion a year ago. Some of this may be attributed to stores opening even earlier this year, with many welcoming the public before the end of the holiday. Thanksgiving Day openings seemed to draw the ire of many, but that apparently did not stop determined shoppers from pushing back from their turkey to head out in search of a deal.

Another major milestone this year was the 22% spike in online shopping on Black Friday. The total spending tally jumped from last year’s $816 million level, breaching the $1 billion mark for the first time ever. This is a major breakthrough for Black Friday as the big online day has typically been Cyber Monday; shoppers hit the stores for deals right after the holiday and then turn to the internet on Monday morning for additional deals. Needless to say, Monday is expected to be one the least productive days of the year in America.

By the Numbers: Wal-Mart

Bill Simon, the president and CEO of Wal-Mart U.S., applauded the hard work of the company’s employees who helped the company reach some impressive sales totals: "I'm so proud of what our more than 1.3 million associates have done to prepare and execute our Black Friday plans, giving our customers a great start to their Christmas shopping season.” Sales figures for some top items included:

  • 1.8 million towels
  • 1.3 million televisions
  • 1.3 million dolls
  • 250,000 bicycles

If you put these numbers into one context, they add up to Wal-Mart selling one television and one doll for every employee the company counts.

The Competition

Wal-Mart was not the only big winner during what has been called the Super Bowl of retail. Target (NYSE: TGT), which received major pushback from employees over its Thanksgiving Day open, put up big numbers as well. Target, which trades at a P/E of 14.3 – in line with Wal-Mart at 14.4 – is a fraction of the size of Wal-Mart, but was still able to draw a large number of shoppers to its stores for the holiday dash.  

J.C. Penney (NYSE: JCP), whose CEO sent an email to customers explaining that the store would remain closed on the holiday out of respect for family and the store’s values, saw no major drop in shoppers; the company’s Waterford, Conn., store sold out of reduced price coffee makers and toasters within four hours of opening its doors. Overall, the numbers have shown great promise for this year’s shopping season.

The Risk

Despite the big numbers, I would caution you to take into account that shoppers have become smarter in their approach to saving money, particularly during the ongoing economic concerns that persist. There has been an increasing shift by shoppers toward online retails, like Amazon (NASDAQ: AMZN), because of both the perception and reality of lower prices. The uptick in online shopping on Black Friday will likely prove beneficial to Amazon, but the numbers are dwarfed by those in traditional brick-and-mortar stores.

The risk is that shoppers, recognizing the reduced prices available at the above retailers, chose to take advantage of those deals on a temporary basis. Once those deals have passed, these same shoppers may return to online shopping in search of better pricing. Should this occur, the Black Friday results will prove to have little bearing on the ultimate success of these stores. Amazon may have lost out in the near term, but if shoppers revert to online shopping, ultimately Amazon should be in good shape.

The Trade

While I continue to look favorably upon Wal-Mart overall, it is too early to make any final determinations about the stock based on last Friday’s results. Wal-Mart should be considered a solid buy for your core portfolio, but should not receive any additional weighting under current conditions.

Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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