Further, the competition in the retail industry is characterized by the development of the stores at right locations, and maintaining price leadership. The company employs many programs designed to meet competitive pressures within the industry. For instance, the company implements EDLP – the commitment to maintain price leadership under which the company prices items at a low price every day.
……..registered significantly better performance vis-à-vis its competitors
Target Corp (TGT) and Costco Wholesale Corp (COST) are treated to be the primary competitors of the company in the US, though it faces strong competition from a number of national or regional stores. The company has registered mixed financial performance compared to its primary competitors in the retail industry. This is based on some important parameters such as sales growth, net profits, current ratio, long term debt equity.
For the trailing twelve month period, Walmart registered a revenue growth of 7.2%, while TGR and COST registered the respective revenue growth rates of 2.5%, and 7.4%. The company also registered a sales growth of 1.7% in the fourth quarter of 2009 over the fourth quarter of 2008, where as the other players reported the respective revenue growth rates of (1.6%) and (0.7%).
During the same period, the company has registered significantly better profit margins. The operating profit margin of the company for the trailing twelve months period stood at 5.62%, compared to that of TGR at 5.44% and COST at 2.49%. Similarly, the net profit margin of the company stood at 3.39%, while that of TGR, and Cost stood at 3.41% and 1.64%. Considering the large operations of the company, this could be treated as a significantly better performance compared to its competitors.
Negative outlook for the retail industry
Though the retail industry is relatively immune to economic turndowns, yet they are suffered with the ongoing recession, and lacking financial support. Further, considering the weakening demand for certain products and reduced consumption pattern in the downward economy, the company may face impediments to expand its operations in the United States. The expansion of operations includes the launch new discount stores as well as the conversions of discount stores into supercenters. In addition, a significant number of analysts on the street expect that the retail recession may begin in the second quarter of the 2009, resulting in weaker sales volumes for the companies operating in this sector.
The first quarter of FY2010- Earnings estimation
On May 7, 2009, the company reported it net sales and comparable store sales for the four-week and 13-week periods ending May 1, 2009. Comparable store sales at Walmart US increased 5.9 percent during the April period, due in part to the Easter calendar shift. Comparable store sales for the combined March-April nine-week period increased 2.9 percent, driven by an acceleration of traffic and strength in seasonal and discretionary categories. The international sales also increased 13.0 percent in the April period. With a 20.0-percent impact from currency exchange rates, reported sales decreased 7.0 percent in the International segment.
Further, the company expected to report total net sales for the fiscal quarter ended April 30, 2009 of approximately $93 billion, which includes an impact from currency exchange rates. Considering its performance during the March and April period, we can expect the company to reach it prior guidance for the first quarter of FY2010.
The stock price of Wal-Mart is relatively less volatile. The stock price of the company has declined by 20.2% from it 52 week high and increased by 10.2% from its 52 week low to reach $50.97. Considering consistent financial performance and strong market position, it could be a better trading stock for the retail investors, indicating buy at lower levels and sell at higher levels.