Whole Foods, Costco, Wal-Mart: Controversial, Moral, and Immoral

You don't have to look far to find companies opting for increased sales over increased family time. These days, most retailers are open on Thanksgiving Day, and this trend might snowball over the next few years, with stores opening earlier and earlier. Many employees oppose these new policies, but there's not much they can do about it. 

Whole Foods Market (NASDAQ: WFM  ) , Wal-Mart Stores  (NYSE: WMT  ) , and Costco Wholesale (NASDAQ: COST  ) have different policies, and these policies and their potential effects on company performance will briefly be analyzed. 

Public backlash
When you think of stores opening on Thanksgiving, you likely think of retailers opening earlier than in past years. This has led to extreme backlash from the public, who believe that Thanksgiving should be spent with family, not shopping or at work.

However, grocery stores, or retailers with grocery stores, are a different story. Many people need to visit the grocery store for last-second items on Thanksgiving Day. Therefore, there's more of a purpose for grocery stores to remain open, at least for part of the day.

Approximately 24 Whole Foods Market employees felt otherwise, protesting local store openings in the Chicago area. While 24 is a small number of employees, their objections to store openings managed to become big online news.

You might think this has the potential to lead to a widespread public backlash against Whole Foods, but these 24 employees aren't very noticeable. The online news will quickly fade, and loyal Whole Foods shoppers will return to stores as if nothing had happened.  

As it turns out, Whole Foods doesn't have a companywide policy for its stores to open or not open on Thanksgiving Day. It's up to management teams on a store-by-store basis. Additionally, Whole Foods paid time-and-a-half for those who chose to work on Thanksgiving Day. Given the current economic environment, this led to so much demand that there was a waiting list for people who wanted to work. 

As far as the protesters go, their attack against the company has some merit, but supporting a family is a priority for most people, and Whole Foods offering time-and-a-half is an indication that the company appreciates its employees. Thanksgiving dinner can always be moved to a later time.

The moral investment
If you want to invest in a company that also offers an impressive grocery section, yet it didn't bother to open on Thanksgiving Day, then you might want to consider Costco.  According to the chart below, remaining closed on Thanksgiving Day hasn't hurt its top line whatsoever:

COST Revenue (TTM) Chart

Costco revenue (trailing-12 months) data by YCharts

Costco offers more than a grocery section, and it offered Black Friday deals through Dec. 1. It also opened earlier on Black Friday than in past years: 9 a.m. versus 10 a.m. However, Black Friday deals at Costco are limited since the company already offers discounts year-round.

If you want to go the moral route, then you will be happy to know that Costco offers more than just top-line growth. It has managed its costs well over the past five years, which has allowed it to grow its bottom line:

COST EPS Diluted (TTM) Chart

Costco EPS diluted (trailing-12 months) data by YCharts

Additionally, Costco manages debt well, sporting a debt-to-equity ratio of 0.5. It generated $3.6 billion in operating cash flow over the past 12 years, and it currently yields 1%.

All that said, you might have noticed that Whole Foods has been even more impressive on the top and bottom lines. It should also be noted that Whole Foods sports a superb debt-to-equity ratio of 0.01. Furthermore, it generated $1.0 billion in operating cash flow over the past year, and it currently yields 0.9%.

As far as the difference in cash flow generation, Costco is a much larger company with a market cap of $54.8 billion versus a market cap of $21.1 billion for Whole Foods.

The "immoral" investment
Some people think the best way to make money in the stock market is by investing in the most immoral companies. This isn't necessarily true, but if any of the three companies mentioned here can be classified as immoral due to their Thanksgiving Day policies, it would be Wal-Mart.

Wal-Mart didn't close on Thanksgiving Day. Without the company's grocery section, it would be difficult to imagine revenue exceeding costs for the day, but the grocery section exists, which might make this decision worthwhile.

Wal-Mart reopened at 7 a.m. on Black Friday, with its Black Friday deals beginning at 6 p.m., two hours earlier than last year. Round two of Wal-Mart's Black Friday deals began at 8 p.m.

Wal-Mart sports a somewhat respectable debt-to-equity ratio of 0.8, but it generated an enormous $23 billion in operating cash flow over the past year. Therefore, it's easy for Wal-Mart to return capital to its shareholders, even after capital expenditures.

Wal-Mart currently yields 2.3%. It's also trading at 14 times forward earnings, making its valuation more appealing than Whole Foods and Costco, trading at 29 and 25 times forward earnings, respectively.

Wal-Mart attracts a wide range of consumers, many of which are having a difficult time making ends meet. These consumers have been hit by a lack of wage growth, an increased payroll tax, as well as volatile food and gas prices. Therefore, Wal-Mart staying open on Thanksgiving Day seems logical from a business perspective. Every day of extra sales helps.

The bottom line
The Whole Foods incident should blow over. The stock has been selling off recently due to fears of overvaluation, but it's a high-quality underlying business. Wal-Mart has been delivering sub-par results lately, which makes staying open on Thanksgiving Day justifiable.

While Costco isn't growing as fast as Whole Foods, the company's policy to remain closed on Thanksgiving isn't just standing on higher moral ground; it indicates that the company feels it's healthy enough that it doesn't need an extra day of sales. This should be comforting to investors, and believe it or not, many consumers respect moral behavior. 

A different kind of retail investment 
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  • Report this Comment On December 07, 2013, at 10:15 AM, Mathman6577 wrote:

    "Wal-Mart reopened at 7 a.m. on Black Friday (*), with its Black Friday (*) deals beginning at 6 p.m., two hours earlier than last year. Round two of Wal-Mart's Black Friday (*) deals began at 8 p.m."

    (*) Shouldn't that be Black Thursday ?

  • Report this Comment On December 07, 2013, at 10:47 AM, betty15 wrote:

    Immoral? What is immoral about opening a store on Thanksgiving? Wal-Mart has been open on Thanksgiving for many years. I can remember when stores were closed on Sundays, but thank goodness now stores are open when people have the time to shop. This author was desperate for something to write about.

  • Report this Comment On December 07, 2013, at 10:51 AM, Mathman6577 wrote:

    Dan: Whoops. Never mind about my comment. I reread your article.

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