Retail Week In Review: Wal-Mart, Target And Costco

The past week in the U.S. retail industry was mainly about major retailers, Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), unveiling their plans for holiday hiring. While the retail giant decided to increase its hiring as compared to 2013 for the busiest season of the year, cheap chic retailer decided against it. In other news, warehouse giant, Costco (NASDAQ:COST), ended its partnership with American Express in Canada, as both parties could not settle on some terms of a new agreement. Costco will now switch from American Express to Capital One and MasterCard, for issuing its credit cards in Canada. Here’s a quick roundup of the news that mattered for the retailers that we cover.

Wal-Mart – Uplifting Holiday Hiring

Megaretailer Wal-Mart stated that it plans to hire 60,000 temporary workers for this year’s holiday season, which usually accounts for close to 20% of annual retail sales in the U.S. As compared to 2013, the retailer will hire 10% more workers this season, as it prepares to handle more traffic, improve its customer service and allocate sufficient staff to 200 stores opened during the last one year. ^[1]

Wal-Mart stated that its holiday hiring includes both – workers in stores and distribution centers. At the end of the season, 25% of the new workers will get permanent jobs at the company. Also, Wal-Mart made it clear that its current workers, who are seeking additional work hours, will be given priority over new employees. This is in contrast with what Wal-Mart has been criticized for – intentionally offering fewer work hours to its employees. ^[1]

In other news, Wal-Mart India decided to offer e-commerce options in all its current and future stores, encouraged by pleasing response to its pilot program in two major cities – Hyderabad and Lucknow. The retailer plans to add 50 stores in India over the next five years, and all of them will have the online shopping option. ^[2] U.S. buyers have been reluctant in spending at Target post the massive data breach, in which personal information including credit and debit card details of close to 70 million customers was stolen. As a result, apparently, Target has decided against increasing its holiday hiring. Interestingly, the company had reduced its holiday hiring last year to 70,000 from 88,000 in 2012, in anticipation of a weak season.

We estimate Target to generate $75.60 billion in revenues in 2014, while the consensus estimate stands at $74.50 billion. Our price estimate for Target stands at $67, implying a premium of more than 5% to the market price.

Costco – Canadian Segment Parts Ways with American Express

Ending a 15 tear exclusive relationship, Costco Canada will stop accepting American Express cards in 2015, Costco spokesman Ron Damiani said. The warehouse giant’s  partnership with American Express ended as they could not mutually agree upon certain terms of a new agreement. ^[3] Until now, customers looking to pay with credit cards at Costco only had the option of American Express, but January 2015 onwards, Capital One Financial Corp. and MasterCard Canada will issue Costco credit cards. The Capital One Platinum MasterCard will also serve as a membership card, in addition to a credit card. ^[4]

We estimate revenues of about $114 billion for Costco in Fiscal 2014, with earnings per share of $4.93, which is slightly above the high end of market consensus of $4.65-$4.51, compiled by Thomson Reuters. We currently have a $123 price estimate for Costco, which is just below the current market price.

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1. Walmart plans to boost holiday hiring, CBS, Sept 18 2014 [↩] [↩]
2. Walmart India to offer e-commerce option in all stores, Live Mint, Sept 18 2014)

   We estimate revenues of about $485 billion for Wal-Mart in 2014, with earnings per share of $5.45, which is slightly above the market consensus of  $4.89-$5.37, compiled by Thomson Reuters. We currently have a $79 price estimate for Wal-Mart, which is about 5% premium to the current market price.

   Target – Holiday Hiring Remains Unchanged

   While Wal-Mart increased its holiday hiring by 10%, Target stated that it will hire the same number of temporary employees as it did last year. Although Target will hire close 70,000 employees, which is more than what Wal-Mart and J.C. Penney plan to do, not increasing holiday hiring clearly indicates that the company is planning conservatively in the wake of the past year’s issues. ((Wal-Mart ups holiday staffing; Target, Penny’s flat, CNBC, Sept 18 2014 [↩]

3. Costco Canada parting ways with American Express, News Montreal, Sept 18 2014 [↩]
4. Costco to stop accepting American Express in Canada, switches to Capital One and Mastercard, Financial Post, Sept 18 2014 [↩]