Is This Giant Worth A Look?

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Discount retailers stand to benefit the most from the effects of an economic slowdown. As consumers become more conscious about their spending, they look for cheaper stores where their daily needs can be met at the lowest possible prices.

Retailers such as Dollar Tree (NASDAQ: DLTR) are the beneficiaries of this trend. As mentioned earlier, the strength of this player lies in its discounted offerings, especially in its strategy of offering products for $1 to lure customers to its stores. Growing foot traffic in its stores led Dollar Tree to expand internationally with more than 200 new stores opened this year. Hence, the company has rather enjoyed the trend of reduced spending by consumers.

Similarly, Wal-Mart (NYSE: WMT) has also resorted to the strategy of offering low prices to customers by lowering its costs as much as possible. This has largely helped Wal-Mart beat its rivals, such as Target (NYSE: TGT), and move ahead of the competition. However, this quarter, Target outperformed Wal-Mart in the third quarter results.

Results as Against Peers…

Target beat Street expectations on both the top and bottom lines along with a bright outlook for the current quarter. On the other hand, Wal-Mart missed revenue expectations by a whisker mainly due to unfavorable currency exchange rates. But there is more than meets the eye.

Target offered temporary discounts that drove revenue higher. Hence, it might be a temporary phenomenon. On the other hand, Wal-Mart offers discounted prices throughout the year. Moreover, Wal-Mart has a wide international presence whereas Target has a limited geographical presence that makes it less vulnerable to foreign exchange rate movements.

Into The Quarter

Driven by growth in each of the segments, Wal-Mart’s revenue increased 3.4% to $113.2 billion. Since most of the customers are in the low income group, the retailer offered value for money that lured shoppers in hordes. Also, its efficiently managed costs and production efficiencies enabled the company to witness an 11% jump in earnings per share, reporting $1.08 per share.

Additionally, its initiative of building smaller stores closer to customers was instrumental in decreasing costs and increasing revenue. This enabled the shoppers to visit Wal-Mart for every small requirement.

Future Looks Interesting…

Wal-Mart has been playing it smart by being dynamic. Its decision of adapting to the changing preferences such as moving to less costly stores and providing reasonable prices, at such tough circumstances, have fared well.

The company looks forward to the upcoming holiday season which is supposed to be the best time of the year. It is busy preparing for this period by having new products on its shelves, and marketing itself well. In fact, its main area of focus is the price which it believes will be instrumental to its success.

Even demand is expected to be on the rise, especially because of Thanksgiving and Black Friday. Also, its recently launched layaway program has been attractive to customers. Moreover, Hurricane Sandy made life even more difficult for many lower income group people. Hence, these customers will definitely turn to cheaper options such as retailers which offer lower prices.

In Summation…

Wal-Mart has been very active, formulating strategies for every problem that comes its way. Its Everyday Low Prices and increased expansion into busy markets have been the strengths for the company, taking it to new highs. With its new product assortments and its peak holiday season coming up, Wal-Mart seems to be setting new records. This company is worth a bet as it continues to shine in the toughest conditions.

justhimanshu has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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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