Online Retailer One-Ups Wal-Mart On Price

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Wal-Mart promises to “always” deliver the lowest prices. It says it right there on the back of the company's semi-trailer used to transport merchandise. Perhaps that promise does not include the discount retailer's online business. According to a study performed by Bloomberg Industries, (NASDAQ: AMZN) prices beat Wal-Mart nearly half of the time based on a control group with dozens of toys. Last year Wal-Mart came out on top in a similar study.

The discount retailer market can hardly get more competitive, with stores opening up a day early this year to officially launch the holiday shopping season on Thanksgiving Day. High-end retailer Nordstrom publicly announced that it wouldn't be “decking the halls” until the day after Thanksgiving, based on reports. Nonetheless, Wal-Mart (NYSE: WMT) is driving the discount train, and when it revealed it would open its doors on Thanksgiving Thursday the rest of the discount retailers climbed aboard.

Inventory Juggling Act

Regardless of when the holiday shopping season for 2012 begins, retailers all have to strike that balance with toy inventory levels. If they are understocked, they will lose sales to their competitors. If they overstock their shelves, they are likely to unload those items at fire sale prices in 2013. According to the Bloomberg study, remained well stocked, while Wal-Mart and Target (NYSE: TGT) were understocked by 3% and 8%, respectively.  Last year, retailers sold out of inventories quicker while Amazon did the best job of managing its inventory levels.

Getting It Right?

<table> <tbody> <tr> <td><strong> Company</strong></td> <td><strong>3Q 2012</strong></td> <td><strong>2011</strong></td> </tr> <tr> <td><span><strong>Wal-Mart</strong></span></td> <td>$47.4bn</td> <td>$44.3 bn (3Q)</td> </tr> <tr> <td><span><strong>Target</strong></span></td> <td>$9.5bn</td> <td>$9.8bn (4Q)</td> </tr> <tr> <td><span><strong></strong></span></td> <td>$5bn</td> <td><em>$4.9bn (4Q)<br /></em></td> </tr> </tbody> </table>

(Inventory results based on data collected from SEC filings from Wal-Mart, Target and

 Wal-Mart reported its 3Q results on November 15th, and made a compelling assessment about the global economy: 

"More customers are part of a growing global middle class, looking for quality, value and a better life, and our [every day low price] model matters to these customers." (Wal-Mart 8-K filing) 


Wal-Mart also indicated that sales in the first half of this month were trending higher than expected, and that it has high hopes for Black Thursday. The company outlined some broad expectations for comparable store sales, which are pegged at between 1% and 3% for the period beginning October 27, 2012 through January 25, 2013. This compared with comp sales of 1.5% in the year ago period.

Wal-Mart shares lost more than 3.5% on on the heels of the company's earnings announcement. Earnings per share were $1.08 on a diluted basis, which was an 11% improvement over the year-ago quarter.

Although revenues improved 3.5% over the year ago period to $113.2 billion, Wall Street analysts were expecting better. Wal-Mart also raised the low-end of the range of its full year earnings estimates to between $4.88 and $4.93 per share, but that outlook trailed analyst estimates. The stock is trading at a price-to-earnings ratio of about 14 based on the company's full year earnings guidance, which makes it attractive at these levels. 

Target's trailing P/E ratio is competitive to Wal-Mart at about 14%. In its 3Q, Target generated a 3% increase in sales to $16.9 billion. EPS were $0.96 compared with $0.82 in last year's 3Q. Based on the company's fiscal full year earnings guidance, the stock is more affordable with a P/E ratio of about 12.

<img src="/media/images/user_13739/mf-competing-pes_large.png" />

Retail Sales

October retail sales slipped 0.3% compared with an upwardly revised 1.2% jump in September. October results were impacted by Hurricane Sandy, which happened at the end of the month and caused a number of store closings for days. The holiday sales figures remain a mystery but discount retailers -- including, Wal-Mart and Target -- have something working in their favor: "Price will continue to be a major factor for U.S. customers over the holidays," said Mike Duke, Wal-Mart president and CEO, in the 3Q earnings report. 

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