Behemoth vs. Rising Titan: Wal-Mart and Target

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This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and watch out for more Battle of the Brands posts.

America use to have the battle of Sears vs. Kmart back in the 1970s and 1980s. Well, both are now combined into one entity named Sears Holdings Corp. (NASDAQ: SHLD) which, frankly, is still struggling for its identity. The new king of the hill from a revenue perspective is Wal-Mart Stores Inc. (NYSE: WMT). No question, with revenues this fiscal year ending January 31, 2008, expected to be $380 billion, Wal-Mart is the behemoth. The largest retailer in the world, period. But I wouldn't touch the stock. The comment most attributed to Wal-Mart is "it's tired." The stores look worn and the shopping experience arises more out of necessity than desire. Also, with a $200+ billion market capitalization, moving the needle even just 10% is quite challenging.

Why bother with a company that will have a very difficult time growing its revenue and earnings base? Why bother with a company that is being attacked, successfully, on both sides of its key businesses: the discount retailer and the warehouse stores? Why bother with a concept that has saturated its market with more than 3,200 stores in place? The only sure-fire way to grow the earnings base is through same-store-sales monthly increases, and yet, Wal-Mart is struggling in this capacity. The answer is not more stores, and pricing increases go against the Wal-Mart credo of everyday low prices. Sure, shareholders of the past 30 years have been exceptionally rewarded and Wal-Mart is the quintessential American brand, but there is a far better and exciting story for shareholders going forward. That story is the rising titan, Target Corp. (NYSE: TGT).

Target is a refreshing, exciting concept with creative and skillful advertising. The big red-target sign is now totally ubiquitous with Target. In fact, Target recently received a patent for the shade of red used in its logo.The fashion offerings are not Nordstrom's quality, but they are innovative and very popular. The shopping experience at Target is pleasant and unhurried. The stores are brightly lit, clean, and clear of clutter. The store count is 1,488 in the United States, with room to double that base. Target has beaten Wal-Mart on monthly same-store sales 25 of the last 26 months. It's no accident. The Target customer is from every socio-economic background, and Target has very successfully implemented the Target Visa card. The credit operations are profitable and becoming the goose that lays the golden egg. Customers are loyal to both the store and using their Target credit card.

Target is looking for revenues this fiscal year ending January 31, 2008 of $65 billion and earnings per share of $3.60 to $3.65, with excellent growth for January 2009: revenues of $73 to $74 billion and earnings per share of $4.12 to $4.15.

Target is fast becoming the choice for consumers, but it should also be clear choice for investors as well.

Georges Yared is the author of Stop Losing Money Today and Baby Boomer Investing. Please visit www.georgesyared.com

Be sure to vote in our poll for Target or Wal-Mart as your preferred brand, and let us know why you love it in the comments. Results of all Battle of the Brands match-ups coming soon.

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Last updated: February 09, 2010: 10:51 PM

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