Despite What Analysts Say, Wal-Mart Is NOT Sears!

The statement that Wal-Mart is the next Sears is becoming tiresome. Make sure you know why this statement is untrue.

Jul 24, 2014 at 9:00AM
Wmt Sc

Recently, some pundits on Wall Street have been comparing Wal-Mart Stores (NYSE:WMT) to Sears Holdings (NASDAQ:SHLD). Simply put, Sears was once the largest retailer in the world and now appears to be in a death spiral. Given that the world's new world's largest retailer, Wal-Mart, is having troubles of its own could it too be marked for the same fate? Let's take a look at this argument and see what it might tell us about the future of Wal-mart Stores.   

Top line infatuation
Many investors (and traders) love revenue growth more than anything else. Margin expansion, return on invested capital, and cash flow are more important for the long haul, but top-line growth is still important. Since it's likely what you crave most, let's first look at the top-line comparisons between Wal-Mart and Sears over the past five years:

WMT Revenue (TTM) Chart

WMT Revenue (TTM) data by YCharts

That's a substantial divergence. Many people feel that Eddie Lampert, Chairman and CEO of Sears, is in the process of a slow liquidation of the company. If that's the case, it makes your decision even easier. But let's assume that's not the case.

In this instance, Sears (and Kmart) have failed to deliver merchandise at appealing prices for consumers. This should come as no surprise since Sears is more focused on selling off assets to free up capital than investing in its retail business. 

On the other end of the spectrum, Wal-Mart is holding its own in a difficult consumer environment. Yes, it's target consumer (low- to middle-income) is struggling due to reduced government benefits and a lack of wage growth, but unlike Sears, it has several future growth channels. Its Neighborhood Market has delivered 46 consecutive quarters of comps growth, and its digital sales increased 27% in the first quarter year over year. Wal-Mart is also fully invested in beating out competitors in price (offering lower prices); its new Savings Catcher is a prime example.

Wal-Mart is a clear winner on the top line, but that's not the only metric that matters.

3 other key metrics
If you're looking to invest for the long haul, then you can ignore what the broader market is doing and focus on profits. A company delivering consistent profitable growth can put an investor's mind at ease. With that in mind, take a gander at the chart below: 

WMT Net Income (TTM) Chart

WMT Net Income (TTM) data by YCharts

You also want to see free cash flow growth, which allows a company to reinvest that capital into the business and return excess capital to its shareholders. Wal-Mart currently offers a 2.5% annual dividend yield. Sears can't offer this luxury, which is evidenced by the chart below:

WMT Free Cash Flow (TTM) Chart

WMT Free Cash Flow (TTM) data by YCharts

Furthermore, when you invest in any company, you're investing in the upper management team and its abilities. If you want to determine the efficiency of this team, look at return on invested capital. The picture below paints a clear picture:

WMT Return on Invested Capital (TTM) Chart

WMT Return on Invested Capital (TTM) data by YCharts

As if that's not enough information to show the differences between Wal-Mart and Sears, consider that Wal-Mart currently sports a healthy debt-to-equity ratio of 0.71, whereas Sears is much more leveraged with a debt-to-equity ratio of 2.82.

The bottom line
Wal-Mart is not Sears. Wal-Mart's largest growth stage is over, but it's still capable of slow but sustainable growth. The key difference between these two retailers is that Wal-Mart consistently changes with the times and always attempts to stay ahead of the curve, while Sears sat on its hands and hoped for the best. In the retail world, hope fails. Action wins. 

More potential than Tesla? 
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers