Think Retail This Thanksgiving

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

Target Corporation (NYSE: TGT), the second largest discount retailer in the U.S., posted its Q3 results around analysts’ expectations. The Minneapolis, Minnesota based company continued to exceed analyst expectations in Q3 by posting adjusted earnings of $0.96 a share compared to $0.82 in the same quarter a year earlier. While the revenue rose 3.2% to $16.93 billion, the Net income stood at $637 million marking a rise of 14.8% from the year earlier quarter. The Company paid dividends of $236 million in the third quarter and spent $104 million to buy back around 1.7 million shares.

The Company’s revenue from the Credit Card segment went down by 5.8% to $328 million even though the penetration increased to 8%. The debit card penetration increased 3.4% to 6% and the total REDcard penetration increased by 50% to 14% from the year earlier quarter.

According to Target what will help sustain sales and drive traffic would be its 5% REDcard Rewards Program, PFresh remodel program, The Target/Neiman Marcus Holiday Collection and new Holiday Price Match Programs. Target is also eying an entry into the Canadian market in 2013 which will help its presence being felt in the global markets.

Going into the holiday season, Target now expects adjusted Q4 EPS in the range of $1.64 - $1.74. The dormant state of the economy continues to be a challenge for Target but with its multi channel marketing strategy and a very competitive pricing strategy and new offerings during the holiday season it expects to achieve its objective of more than $100 billion in sales by the year 2017 and given the company’s plans for the upcoming quarters it definitely makes for a Promising Target to acquire.

Will the Wal(l) stand tall ?

The world’s largest retailer, Wal-Mart Stores (NYSE: WMT), posted its Q3 ’13 earnings of $1.08 per share which was in line with the company’s earnings guidance range of $1.04 to $1.09 per share. Earnings were up 11.3% from $0.97 in the previous year quarter. Wal-mart Stores operate Walmart Discount Stores, Supercentres and Neighborhood Markets & Sam’s Club location in the United States. Looking ahead, Wal-Mart expects its earnings to be in the range of $1.53 to $1.58 per share in Q4 to meet its fiscal 2013 guidance in the range of $4.88 to $4.93.

While the results and forecasts look good the giant retailer may be in for a blackout on one of the biggest shopping days of the year, Black Friday. Workers at 1000 locations across the US said they are angry as the stores are opening up at 8 p.m. on Thanksgiving and which could lead to protest this holiday opening. The disruption might cause potential damage to its image in the country and its holiday plans. The company is a safe bet for investors, but in the short run I’d recommend a Hold. 

Something for the COST cautious consumer

Costco Wholesale (NASDAQ: COST), one of the largest wholesale club operators in the U.S., operates more than 600 warehouses across the globe, ahead of Wal-mart’s Sam’s Club. Since the same quarter a year earlier, its revenue has increased by 14.3% while its net income has jumped by 27.4% from $478 million to $609 million when compared to the same quarter of the previous year. The company has also shown an impressive performance on the earnings front by reporting an increase of 29% to $1.39 from last year’s reported Q4 earnings of $1.08.

Costco has a low profit margin when compared to its competitors but its strengths can be seen in areas of revenue growth, EPS growth and a rock solid performance on the stock price front which is up nearly 18% from a year earlier. Moreover, its very low debt-equity ratio of 0.13 implies sound management of debt levels. All these parameters combined make it for a good stock to buy ahead of the holiday season.

Let’s Pick

The retail business as a whole looks very prospective to me. I believe Target is for the investors who believe on the company’s innovative skills and could turn out to be a good pick with its new and fresh offerings this season. Wal-Mart, on the other hand, is the biggest name in the retail business which has kept promises it has made and apart from certain operational issues this stock will gain in the long run given its coverage across the U.S. Costco’s pricing and product selection, which are mostly necessity household goods, gives the company an edge of being different. Its robust growth is expected to continue for some time and it will definitely be a good short term buy. All stocks look good to me which leaves the decision on investors to choose between innovation, a trusted brand name or a cost efficient company. 

shaleenlohia has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend 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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