Company Selection Paper Wal-Mart Versus Target

University Degree Business and Administrative studies

Wal-Mart/Target

Sonya Black, Kim Dixon, Keneisha Dunlap, Mishalene Neal, Brenda Williams

Team Assignment I

University of Phoenix

FIN/ 324- Financial Analysis I

Group GA04BSM09

Emmanuel Ogunji

October 12, 2005

Company Selection Paper Wal-Mart versus Target

A couple of decades ago Zody’s and Gemco were the stores to shop at for household supplies, small appliances, and clothing apparel. Just as everything changes so does the retail industry. Zody’s and Gemco have been gone for sometime now, and have since been replaced with Target, and Wal-Mart Stores. Both stores have very unique trademarks Target is known for its red bulls eye, and Wal-Mart is known for the moving big yellow smiley face. What would make an investor select Target stock over Wal-Mart or vice versa? This paper shall explore the financial position of each organization.

The red bulls eye may have been just become affiliated with Target, but they were known long before the bulls eyes came into place. Target was founded by George Dayton in 1902. George Dayton opened a retail store in downtown Minneapolis. Originally known as the Dayton Dry Goods Company, it became the Dayton Company in 1910. In 1962, the Dayton Company became public and opened its first Target discount store in Roseville, Minnesota, a suburb north of St. Paul. By 1979, it would be the company's top revenue producer (target.com 2005).

However, when Zody’s and Gemco were in their prime there was a silent storm waiting. In 1945 Wal-Mart’s founder, Sam Walton, became manager of a Ben Franklin variety store in Newport, Arkansas. He later moved to Bentonville, Arkansas, and in 1950 opened its first distribution center and home office in Bentonville (walmart.com, 2005). In 1972 the company was listed on the (NYSE). By operating its own warehouses, Wal-Mart could buy goods in large quantities and thus cut costs. In addition, the company another Ben Franklin franchise that he called the Walton 5 & 10. By 1962 he managed 15 Walton 5 & 10s. That year, unable to convince the Ben Franklin Company to start a chain of stores that offered discounts all the time on all items, Sam and his brother James “Bud” Walton opened their own store, Wal-Mart Discount City, in Rogers, Arkansas. In 1969, operating 18 Wal-Mart Discount City stores (now called simply Wal-Marts) while still managing 15 Ben Franklin stores, Sam Walton incorporated the company as Wal-Mart Stores, Inc. In 1970 the company sold its first stock to the public and built stores within a short drive of its warehouses and instituted an automated and computerized inventory and distribution system to stock its stores more quickly (walmart.com, 2005)

The retail industry is starting to recognize the needs of today’s society. While Target and Wal-Mart both offer a selection of general merchandise, including apparel, electronics, health and beauty aids, toys, sporting goods, and household products. Wal-Mart seems to have the idea on what to offer than just the traditional items found at retail stores, they offer a full-line supermarket and pharmcies within their stores. Wal-Mart has learned that killing two birds with one stone gives an upper-hand on the competiton.

Target and Wal-Mart are in the retail industry. Retail is defined as, “to sell in small quantities directly to ...

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Target and Wal-Mart are in the retail industry. Retail is defined as, “to sell in small quantities directly to the ultimate consumer” (Merriam-Webster, 2005). Although other retail businesses like K-Mart exist in the retail industry, Wal-Mart is the number one retail chain in society today. Wal-Mart surpasses other retail chains such as Home Depot and Lowe’s, which are also considered retail stores with a primary concentration in home improvement. The SIC (Standard Industrial Classification) system classifies companies and industries by their primary line of business. The US government developed this system in order to provide a standard method for collecting and analyzing economic information. The SIC codes are used to identify a company's competitors and to locate industry financials and ratios (Cole, 2005).
SIC codes can be used to bring together companies that produce similar products or services. Wal-Mart and Target are part of SIC Code 5331 for Variety Stores along with other major companies like Costco, K-Mart, and Dollar General (Osha.gov, 2005).

The Arkansas-based Wal-Mart tops the list as the nation’s largest retailer with 2003 sales of $258.68 billion, an 11.7 percent increase over the previous year (Melody Vargas, 2005). A financial statement includes a company’s revenue. Typically the revenue listed in the financial statement covers a period of 12 consecutive months. Cost and expenses, which indicate a company’s cost of sales, operating, selling and administrative costs. Assets are also listed in a financial statement. The assets provide more information about the value of the property the company owns. For example, the cash on hand the company has property, plant and equipment, prepaid expenses.

Wal-Mart’s Audit Committee consists of four directors. The members of the Committee are Steve Friedman, Roland Hernandez, who is the Committee’s chair, Dr. Fred Humphries and Dr. Paula Stern (Issue watch, 2001). Wal-Mart’s management is responsible for Wal-Mart’s internal controls and financial reporting. Ernst & Young LLP, Wal-Mart’s independent auditors, are responsible for auditing Wal-Mart’s annual consolidated financial statements in accordance with generally accepted auditing standards and for issuing a report on those financial statements (Issue watch, 2001). The Audit Committee monitors and oversees these processes, and recommends to the Board for its approval a firm of certified independent accountants to be Wal-Mart’s independent auditors (Issue watch, 2001).

According to Target’s 2004 annual financial statement, “ management is responsible for the consistency and integrity of the information in the annual report”. Target claims to maintain comprehensive systems of internal controls that they believe provide reasonable assurance (Target.com, 2005). Target’s financial statements have been audited by Earnest and Young LLP, an independent public accounting firm (Target.com, 2005)

Wal-Mart and Target can be compared on various similarities but there are definitely some distinctive differences. Stock information is one differentiation between the two. According to Market watch Target Corporation today has reported that the company’s net sales increased 11.4%. This increase is shown in their revenue increase from 3.866 billion to 4.306 billion. Target retail store sales increased 5.6%. In comparison Wal-Mart experienced an increase as well. According to second quarter reporting there was a 2.8 billion dollar increase for the second quarter 2005. Net sales for 2005 were 76.8 billion with a 10.2 % increase. Wal-Mart CEO and President stated, “I am proud that the hard work of our associates allowed us to report another record quarter” (Marketwatch.com). The dividends declared per common share ranged over a period of 3 three-month quarters from $0.09 to $ 0.52. The footnotes indicated during the first quarter of fiscal 2005, the company’s board of directors declared an annual dividend of $0.52 per share, or $2.2 billion, on shares of the company’s common stock (Edgar Online, 2005).

NYSE is the stock index on which both companies are traded on. They can be identified on the stock exchange be there stock ticker symbols. Target is TGT, and Wal-Mart is reported as WMT. Both companies have experienced and increase in stock prices. Currently Target is 52.55, with a daily high of 52.85 and a low of 52.25. The stock opened on 11 October at 52.22. Target stock prices have risen .33 cents or 0.63%. Wal-Mart is marketed at 45.25 also having a daily high of 45.20 and low of 44.55. Wal-Mart current stock price is now up about .51 cents or, 1.2 %. Both companies have been able to provide dividends to their shareholders.

Wal-Mart and Target show similarities in that each of them reflected in their financial statements that they both have common, preferred and treasury stocks. According to the stock quote listed at Investorsguide.com, Wal-Mart currently has $4.15 billion outstanding shares of common stock. The 2005 Annual Report for Wal-Mart Stores indicates that after considerations were primarily given to the company’s cash needs, cost of borrowing, and the market price of its stock, $4.5 billion of common stock was repurchased by the company during fiscal 2005.

As of October 10, 2005, Target Corporation’s outstanding stock is $884.66 million (Investorsguide.com, 2005). In January 2005, Target authorized 6,000,000,000 common stock shares and 5,000,000 preferred stock shares, although at the time, none of the preferred stock shares were issued or outstanding, and no current information was available from this source (investors.target.com). Target’s Board of Directors also initiated a repurchase plan of $3 billion of common stock back in June of 2004.

With so much negative publicity it is not unlikely that Wal-Mart stock would not be doing extremely well. It seems as though Wal-Mart’s stock continues to decline while Target is on the incline with Wal-Mart’s 52 week high at 57.89 which was on November 15,2004 and the 52 week low at 42.31 on September 22,2005. On the contrary Target’s 52 week high is at 60.00,their high was recent on July 20,2005, with the 52 week low being at 45.55 on April 29,2005. After conducting brief examinations of each company’s financial standings, there were no indications of outstanding bonds for either company. Based on the information provided and reflected in the preceding paragraphs, it is concluded that both of these company’s are definitely doing big business.

Whether the consumer decides to shop Target or Wal-Mart is a matter of preference. Wal-Mart prides itself on one stop shopping with the super Wal-Mart offering everything from groceries to car tires. Target on the other hand draws thousands of customers weekly and still remains a force to be recognized in the specialty retail arena. Each company has an impressive financial report and would likely make a good investment option.