This Retailer is Going to Sail Through
tarun is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Wal-Mart (NYSE: WMT) reported its third quarter earnings on Nov. 15, with revenues of $113.93 billion increasing by 3.4% on a quarter over quarter basis. High gasoline prices, unemployment, and declining footfall at stores in China has affected sales immensely. The world’s largest retailer has earned $3.64 billion in the recent quarter compared to $3.34 billion, a year earlier. Earnings have improved as the effective tax rate has fallen to 31.3%.
Troubles for Wal-Mart
Wal-Mart is facing allegations of bribery. Brazil, China, and India have also brought up allegations of bribery against the company. The retailer is already being investigated by government agencies on charges that Wal-Mart de Mexico, its Mexican subsidiary, paid bribes to Mexican officials to speed up the process of opening stores.
The consumers all around the world seem to be finding it difficult to part from their hard earned money. U.S markets, along with Mexico, U.K., China, and Argentina, the company’s major revenue generating sources, all seem to be in the same position due to the global slowdown.
The Good and the New
The sluggish economy helps companies like Wal-Mart and Costco (NASDAQ: COST) as people trying to save money get the best deals there. This seems to be a silver lining for both the companies. This year Wal-Mart developed a technology that helps the company regularly monitor competitors' online prices for every product they sell. This online pricing tool helps the company to be more competitive.
Wal-Mart has entered into subscription commerce with the launch of Goodies Co., a monthly service where a consumer can sign for a monthly package of sweets and snacks. Other services charge $12 to $30, while Wal-Mart will be charging only $7 for the package, including shipping. The price advantage should reap benefits for the retail giant once Goodies Co. gets its footing.
Rival retailer Target (NYSE: TGT) has been luring shoppers into its stores with a wider variety of food products and 5% discount for its cardholders. Target is trying to improve customer’s online shopping experience and has introduced easy to use mobile apps. Wi-Fi access in stores enables shoppers to research the products before purchasing them. The company’s Canadian stores should start on time and as budgeted, thereby becoming Wal-Mart’s direct competitor in the Canadian market. Company’s investment to reduce its expenses regarding inventory management and improving its supply chain efficiencies has started providing results.
Wal-Mart has made major progress in its online business this year and its new search engine, Walmart.com has led shoppers making purchases after searching for products on the site. The progress is good, but Amazon’s (NASDAQ: AMZN) aggressive pricing and speedy delivery service still remains Wal-Mart’s concern. Amazon’s lower overheads, better product selection, and efficient inventory management has helped it dominate the online market. The company’s cost advantage over physical stores and quicker movement of inventory gives it a crucial edge in the retail industry.
Costco sells items in bulk at low cost and makes money from its membership fees. Growth in online sales and volatility in gas prices and foreign exchange has helped the company perform well, even in a slow economy. The ompany’s self-owned gas stations and great bargains it offers to its customers will surely keep its competitors at bay.
Wal-Mart is the biggest retailer in the world, which makes it a competitor to almost every other retailer on the market. Wal-Mart competes with Amazon’s excellence in online transactions, Target’s innovative methodology, and Costco’s amazing bargains. The company has sustainably grown its revenues, earnings, and dividends over a long period of time. Apart from increased expectation from Wal-Mart and a few operational problems (bribery), the company has a strong footing. Wal-Mart is a stock that should always stay in your portfolio once it’s there.
tarunbachhawat has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Costco Wholesale. Motley Fool newsletter services recommend Amazon.com and 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!