Another earnings season is winding down, folks. Just a few more big names to get through before we ... start the next earnings season. Today, we heard from big-box retailer Target (NYSE:TGT). Tomorrow morning, it'll be archrival and Inside Value recommendation Wal-Mart (NYSE:WMT) chiming in with its Q1 2006 numbers. Here's what you need to know to make sense of the news.
What analysts say:
- Buy, sell, or waffle? Twenty-seven analysts follow Wal-Mart. Coincidentally, the same number rate Wal-Mart a buy as rate Target a buy: 17. Wal-Mart gets two more hold ratings, though: 10 in all.
- Revenues. Wall Street will be looking for 12% sales growth at Wal-Mart. $80.3 billion is the target.
- Earnings. Profits are expected to grow a bit slower: 11%, for $0.63 per share.
What management says:
In the February earnings release on fiscal 2005, Wal-Mart CEO Lee Scott summed up the company's long-term objectives like this: "Our entire management team is dedicated to growing sales by making our stores more relevant to today's customers. We want our merchandise to appeal to a broad range of customers who are already shopping our stores. We want customers to shop Wal-Mart for all their needs, from consumables to electronics, home decor, and apparel."
Or, to paraphrase, Wal-Mart wants to be the place for one-stop shopping. Wal-Mart wants your shopping dollars not just for home furnishings and clothing purchases, but also for electronics, groceries, and -- as I argued in April -- banking.
What management does:
Given our druthers, we'd rather see improvement than stability. But with improvement lacking, we're at least forced to admit that Wal-Mart shows incredible consistency in its margins. Over the last 18 months, Wal-Mart's gross margin is up only 30 basis points, while its operating and net margins haven't wobbled more than 10 basis points over the past year and a half.
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
1/06 |
|---|---|---|---|---|---|---|
|
Gross |
22.8 |
22.9 |
23 |
23.1 |
23 |
23.1 |
|
Op. |
6 |
6 |
6 |
5.9 |
5.9 |
5.9 |
|
Net |
3.5 |
3.6 |
3.6 |
3.6 |
3.5 |
3.6 |
The Fool says:
With its margins remaining strong, but going nowhere. Wal-Mart must depend exclusively on sales to grow its profits and reward its shareholders. Hence Scott's emphasis on growing sales, period. However, as we mentioned last week, Wal-Mart's sales results for the quarter are already out, and they suggest that -- so far, at least -- Wal-Mart is failing to meet its long-term objective.
Although the company is growing its sales faster than its nemesis, Wal-Mart still depends almost entirely on new store openings for its growth. Same-store sales growth -- at existing locations, for the quarter -- was just 3.6% versus Target's 5.1%. This indicates that Wal-Mart is either already fulfilling "all [its customers'] needs" or these customers are choosing to satisfy additional needs elsewhere.
So in tomorrow's news, here's what I'd be on the lookout for: either announcements of what, specifically, the company is doing to change this situation, or evidence of improving margins that will lessen Wal-Mart's own need (for comps growth).
Competitors:
- Amazon.com (NASDAQ:AMZN)
- Costco (NASDAQ:COST)
- Dollar Tree (NASDAQ:DLTR)
- Payless (NYSE:PSS)
- Sears Holdings (NASDAQ:SHLD)
Amazon.com and Costco are Motley Fool Stock Advisor recommendations. Dollar Tree is a Motley Fool Inside Value recommendation. Check out our entire suite of newsletters by clicking here .
Fool contributor Rich Smith does not own shares of any company named above.
