Where to shop, Nationally or Internationally?

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Wal-Mart (NYSE: WMT) is without a doubt the biggest retailer in the world and a stable long-term investment. Having said that, it always helps to have some international exposure beyond the international markets that Wal-Mart serves. With that in mind it got me wondering, would investors benefit from investing in the world's second biggest retailer, Carrefour (NASDAQOTH: CRRFY.PK), or would Costco Wholesale (NASDAQ: COST) provide a better return?

What does Carrefour offer?

This is a very good question, Carrefour offers international exposure, just like Wal-Mart, although the company is nowhere near as large as Wal-Mart (Carrefour is about the same size as Costco), Carrefour has a very broad international presence. Indeed, the company has nearly 10,000 stores, some of different formats, in 33 countries.

On the other hand, Carrefour has a rather large exposure to Europe, with around 73% of the company’s sales coming from the region. Although, it would appear that the company is not suffering as much as some would believe, as during 2012 the company’s sales within Europe only declined about 2.4%, which was for the most part offset by growth in faster growing Asian and Latin American markets, where the company grew sales 4.8% and 10%, respectively.

Revenue breakdown


<table> <thead></thead> <thead> <tr><th> <p><strong>Region</strong></p> </th><th> <p><strong>Revenue Split</strong></p> </th><th> <p><strong>Total Revenue</strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>Asia</p> </td> <td> <p>8.3%</p> </td> <td> <p>E7.2 B</p> </td> </tr> <tr> <td> <p>Europe (ex France)</p> </td> <td> <p>27%</p> </td> <td> <p>E23.7B</p> </td> </tr> <tr> <td> <p>France</p> </td> <td> <p>46%</p> </td> <td> <p>E39.5B</p> </td> </tr> <tr> <td> <p>Latin America</p> </td> <td> <p>17%</p> </td> <td> <p>E16.1B</p> </td> </tr> </tbody> </table>

Most of Carrefour’s revenue comes from its home country, France. That said, 54% of the company’s revenue does come from the rest of the world with a large portion coming from the fast growing Latin America region. Carrefour has been working on streamlining operations during the past few years and as a result, the company’s activities in Greece, Singapore, Colombia, Malaysia and Indonesia have all been discontinued, which reduced the company’s revenue by $6.7 billion during 2012.

In comparison, discount retailer Costco, does not have as much international exposure, with no exposure to Europe.


<table> <thead></thead> <thead> <tr><th> <p><strong>Region</strong></p> </th><th> <p><strong>Revenue Split</strong></p> </th><th> <p><strong>Total Revenue</strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>Canada</p> </td> <td> <p>16%</p> </td> <td> <p>$16 B</p> </td> </tr> <tr> <td> <p>Rest of world</p> </td> <td> <p>12%</p> </td> <td> <p>$12 B</p> </td> </tr> <tr> <td> <p>US</p> </td> <td> <p>72%</p> </td> <td> <p>$72 B</p> </td> </tr> </tbody> </table>

Costco's revenues are mostly derived from the US market, but as you can see it does have some international operations.


<table> <thead></thead> <thead> <tr><th> <p><strong>Region</strong></p> </th><th> <p><strong>Revenue Split</strong></p> </th><th> <p><strong>Total Revenue</strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>International</p> </td> <td> <p>28%</p> </td> <td> <p>$132 Billion</p> </td> </tr> <tr> <td> <p>US</p> </td> <td> <p>72%</p> </td> <td> <p>$338 Billion</p> </td> </tr> </tbody> </table>

Finally, as a comparison, here is the breakdown of Wal-Mart's revenue. Most of the company’s revenue comes from the US. However, Wal-Mart's total revenue is almost 150% larger than that of Carrefour and Costco, so, although Wal-Mart derives the majority of its revenue from the US, its international revenues are actually greater than Carrefour's total revenues.

Size and growth

<table> <thead></thead> <thead> <tr><th> <p><strong>Carrefour</strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>Market cap</p> </td> <td> <p>$16</p> </td> </tr> <tr> <td> <p>Revenues 2012</p> </td> <td> <p>$106</p> </td> </tr> <tr> <td> <p>Revenues 4-yr CAGR</p> </td> <td> <p>-2.9%</p> </td> </tr> </tbody> </table>

Figures in billions; sales reported in Euro’s exchange rates may have an effect.

Carrefour is by far the smallest company by market cap in the group, but the second largest in revenue terms. The reason for this lies in Carrefour’s poor performance over the last few years, which has spooked investors and sent the share price and market cap swirling down.

Obviously, the majority of this poor performance is down to the deteriorating economic situation in Europe. Having said that, as market capitalization goes, Carrefour has never really fulfilled its potential, as during the company’s pre-credit-crisis hay-day its market capitalization only reached a high of $61 billion, only slightly larger than that of Costco’s current market cap.

<table> <thead></thead> <thead> <tr><th> <p><strong>Costco </strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>Market cap</p> </td> <td> <p>$44.3</p> </td> </tr> <tr> <td> <p>Revenues 2012</p> </td> <td> <p>$99</p> </td> </tr> <tr> <td> <p>Revenues 4-yr CAGR</p> </td> <td> <p>8.5%</p> </td> </tr> </tbody> </table>

Figures in billion of $US

Costco’s revenue growth has been the fastest out of all three companies during the last four years.

<table> <thead></thead> <thead> <tr><th> <p><strong>Wal-Mart </strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>Market cap</p> </td> <td> <p>$242</p> </td> </tr> <tr> <td> <p>Revenues 2012</p> </td> <td> <p>$470</p> </td> </tr> <tr> <td> <p>Revenues 4-yr CAGR</p> </td> <td> <p>3.8%</p> </td> </tr> </tbody> </table>

Figures in billions of $US

Wal-Mart blows both Costco and Carrefour out of the water on both size and revenue, but the company does have the slowest CAGR of the three; because of the company’s colossal size it becomes harder to eek out revenue growth.

So why Carrefour?

With sales falling, the share price depressed and net income negative Carrefour does not look to be a suitable investment for anyone. However,  Carrefour’s losses have not gone unnoticed and during 2012, the company parachuted in new chief executive George Plassat, who has begun a three-year turnaround plan focused on reducing debt, cutting overhead and returning autonomy to individual stores in order to reduce admiration costs.

George Plassat has acted quickly and the company returned to growth in the fourth quarter of 2012. After stripping out the effect of closed businesses, revenue grew 0.8%, while full-year sales totaled E86.6 billion, up 1%.

Furthermore, during Q4 2012, the company reported that it continued to see an improvement in its home market, France, where Carrefour is fighting fierce competition. The company has been driving growth in France through aggressive cost cutting, which appears to be working as sales grew 0.6% for the last quarter of 2012.

In addition, it seems that Carrefour’s growth plan is pleasing credit agencies, as in March Standard & Poor’s raised its outlook on the retailers debt to “positive” from “stable,” after the company sold assets worth E2.8 billion last year, bringing its adjusted debt-to-EBITDA ratio down to 2.4 times, around the same as Wal-Mart.

Moreover, Carrefour’s turnaround plan has pleased many analysts, who have revised the company’s earnings estimates for the next two years upwards. Before the last quarter of 2012, the company was expected to earn between, E0.6 and E1.9 per share for the full year 2013. Analysts have now revised this range to E1.1 and E1.4. Meanwhile, average EPS estimates for 2014 have been revised up from E1.5 to E1.6 – up 7%.

So in conclusion

So in conclusion, Carrefour’s exposure to Europe and falling revenues could scare some investors. However, the company’s turn-around plan is on track and investors have already started to see some returns with the company’s share price up nearly 20% this year on recovery hopes.

Overall, while Wal-Mart could be more appealing for defensive investors, Carrefour could be a perfect turnaround play.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. 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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