Wal-Mart, Amazon, or Macy's: A Glimpse at Holiday Results Reveals 1 Big Winner

Predicting holiday sales is difficult, but some key reports from reliable sources provide important hints. In turn these hints illuminate one major winner amongst retailers.

Jan 12, 2014 at 6:00PM

The National Retail Federation expects holiday sales to increase 3.9% year-over-year. We won't know the results until mid-January. However, we can form an educated guess about holiday sales based on retail trends. For instance, retail analytics firm Euclid expects in-store shopping traffic to have increased 8.6% year-over-year. However, this jump in foot traffic is expected to be driven by promotions, as retailers want to clear their inventories. If that's the case, then there's a good chance that sales will increase, but at what cost? 

Picking a winner
According to the IBM Digital Analytics Benchmark, online sales for the fourth quarter improved 10.3% year-over-year. Sticking with the same source, 16.6% of total online sales can be traced back to mobile devices. This represents a 46% increase in sales on mobile devices year-over-year.

Based on these numbers, there's a good chance that Amazon.com (NASDAQ:AMZN) has seen increased sales. This is expected. Amazon has been increasing its sales for years, and at a rapid rate. On the other hand, this steady increase on the top line comes at a price.

For instance, if you look at the change in the profit margin for Amazon in comparison with those of other big holiday retailers, such as Wal-Mart Stores (NYSE:WMT), Target (NYSE:TGT), and Macy's (NYSE:M), its profit margin has been declining at a startling pace:

AMZN Profit Margin (TTM) Chart

AMZN Profit Margin (TTM) data by YCharts

Amazon currently trades at approximately 1,400 times earnings. Despite the extremely high valuation, the stock continues to appreciate, as top-line growth stories see high demand in bull markets. The question for Amazon: is this type of stock appreciation sustainable? If the broader market turns south one day, which it eventually will, it's not likely that investors will flock to a company that doesn't perform well on the bottom line. They will instead opt for a consistently profitable company that generates a lot of cash flow and returns capital to its shareholders. However, for now, all seems well for Amazon.   

The most important news for Wal-Mart here is that it has been extremely consistent on the bottom line. Look at the chart above for an example. Therefore, your dividends (currently yielding 2.40%) and stock buybacks should be safe.

As far as Target goes, its profit margin had been declining prior to the data breach, and the data breach will add more pressure since Target will have to increase its spending on data protection as well as hiring due to higher call volumes. There will also be lawsuits. And don't be surprised if Target spends on a short-term marketing campaign aimed at technological improvements that guarantee the financial safety of customers.  

Then there's Macy's. According to IBM Digital Analytics Benchmark, department store online sales skyrocketed 62.8% year-over-year this holiday season. Combine that with Macy's substantial improvements on the bottom line over the past several years and you probably have a winner. Several years ago, in the early stages of The Great Recession, Macy's was struggling in a big way. To improve its bottom line, it reduced its dividend payments, cut its workforce, reduced contributions to employee retirement funds, and streamlined operations. These moves didn't please everyone, but the company needed to make them to get back on its feet. Also consider that J.C. Penney's failures have likely led to market share gains for Macy's.

The Foolish bottom line
Amazon continues its top-line rampage, which leads to high potential that comes with high risk. The increased costs that Target has likely incurred in relation to its data breach sour any enthusiasm for the company from an investment standpoint, at least until the big-box retailer reestablishes its image. Wal-Mart isn't a big winner, but it's not a big loser either, making it an ideal option for any value investor. If you're looking for top-line growth potential to go along with the likelihood of a limited promotional impact on the bottom line, then you might want to dig deeper on Macy's. 

If you prefer to invest in energy.... 
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and International Business Machines. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information