Walmart (WMT) is the world's largest retailer, competing with companies like Target (TGT), Costco (COST), Amazon.com (AMZN) and Best Buy (BBY). The company recently released its earnings for last quarter and we have updated our price estimate to $70.75, which implies a 30% premium to the market price.
One of the outcomes in the earnings was continued improvements in Sam's Club's results. Sam's Club is a warehouse club that charges a membership fee to its customers and gives them an opportunity to buy goods at lowest prices in the market. It offers bulk displays of brand name merchandise, including hard goods, some soft goods, commercial-sized grocery items, and selected private-label items under the "Member' Mark", "Bakers & Chefs" and "Sam's Club" brands in a warehouse club format.
While Walmart's U.S. segment posted a comparable store sales decline of 1.8% in the recent quarter, Sam's Club posted comparable store sales growth of 2.7%, which was near the higher end of the guidance (this excludes fuel). This was driven by both an increase in traffic as well as growth in the average spend per customer. Sam's Club has been investing in member acquisition and club remodeling to drive traffic. The retailer also did well in discretionary items during the holiday seasons and for the 2010 full year, as it actually gained share in the consumer electronics category. So what does all this point to?
Can Sam's Club Match Costco Revenue per Square Foot?
The success at several levels has resulted in improvements in the revenue per square foot for Sam's Club. We estimate that this figure for Sam's Club increased from about $586 in 2009 to $616 in 2010. However it stands significantly smaller than that for Costco, which has a similar business model. For Costco the estimated figure was $814 for 2009 compared to $586 for Sam's Club.
What this means is that Sam's Club has room to grow in terms of sales productivity and it looks like that is what the company is doing now. It may be possible that while revenue per square foot figure for Costco may not see much growth given it is already on higher side, and that Sam's Club could progress towards that standard.
What does this imply for incremental value-add to Walmart?
If Sam's Club sales per square foot matched Costco's immediately, it would add around 2% to our current price estimate for Walmart. Clearly Sam's Club alone is not a great mover of the stock as it contributes around 5% of our price estimate. What matters most is how Walmart's regular stores perform in the U.S. and internationally.
You can modify the forecast above to see how change in revenue per square foot for Sam's Club can impact Walmart's price estimate.
See the complete $70.75 Trefis price estimate for Walmart's stock.
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Reader Comments (Page 1 of 3)
3-03-2011 @ 1:16PM
stag01987 said...
Walmart's Corporate management needs to get their heads out of the sand and start making the customer their #1 priority. The company has become a huge faceless corporation that sells nothing but overpriced Chinese made junk. They also need to make their workers want to stay with the company. They keep their stores understaffed and under equipped. They should be ashamed of their turnover rate.
3-06-2011 @ 7:47AM
kevin said...
Poor walmart. All their non-sense has finally caught up with them.
3-06-2011 @ 11:18AM
PhilandLin1974 said...
I agree with stag. These days Walmart seems like nothing more than an open air Chinese flea market.
3-06-2011 @ 12:52PM
joe blow said...
When you check out the prices between Walmart and Sam's you will find that Walmart beats Sam's prices just about every time. So why pay for a membership when you can get the same item for less at Walmart. I know it doesn't make any sense but the management at Walmart/Sam's seem to think they can pull the wool over the eyes of the general public by offering bulk items. So buyer beware and price the item at a cost per pound and you to will find that Walmart is a better buy without paying for a membership. And yes you to can get in and out in less than 3 hours at the checkout at Walmart.
3-06-2011 @ 12:57PM
Steve said...
The best thing about WalMart is looking at the shoppers. Now THAT is quality entertainment folks!
Fat people in spandex
Hair in rollers
Butt crack hanging out
Lack of a bath for several days
Wooo-Hooo, time to look for a girlfriend!
3-06-2011 @ 1:12PM
xobamab said...
I was a Sam's Club Member for many years, and I got a free promotional trial offer from costco, and found Costco to be anywhere from 5-10 % cheaper then Sam's. So I let my Sam's membership laps.
3-06-2011 @ 2:10PM
dajt57 said...
never go to either store.
3-06-2011 @ 5:14PM
Culinary Clod said...
I was at Sam's the other day. Had a cart full of stuff. When I went to check out after standing in line forever, the cashier said they don't take Visa. Left my cart there and walked out. Sorry I ever got a membership.
3-06-2011 @ 5:25PM
joan said...
Sams Club will never be like Costco. Costco is clean, Sams Club is a mess. There employees are not helpful and WalMart is definitely not a good to employee company. Costco outshines WalMart from start to finish and they are so good to their employees....
3-08-2011 @ 2:47PM
takaiyjha97 said...
i think wlmart start layway back some people cant buy string out. ithink that wal mart should stared they layway back
3-06-2011 @ 5:54PM
livnrght said...
Have had a Sams Club membership for a couple of years, just price shopped Costco before renewing this year. Sams Club beat Costco consistantly on all the products we purchase.
3-06-2011 @ 7:17PM
cissy said...
I've had both Costco & Sams memberships and feel that Costco outshines Sams everytime, not just in price but in treatment of customers, cleanliness of store, etc. They are better to their employees than Sam's club which in turn makes the employees better to the customers. You get what you pay for and Sams and Walmart are not getting employees that really care about their store, just looking for a pay check until something better comes along. But Sams and Walmart are known for barely paying their employees anything above minimum wage
3-06-2011 @ 9:03PM
marksmant001 said...
The people at Wal Mart are "Corporate Scum", Costco charges $39.00 for a prescription that Wal Mart Rips you off $81.00 for. Case closed.
3-06-2011 @ 9:59PM
Pamela said...
My three favorite stores are Costco, Target, and Best Buy. Why? Clean stores, helpful employees, good prices, and they have the products that I want to buy.
3-06-2011 @ 11:23PM
Felton Marans said...
I belong to all three warehouse clubs. I shop only at Sam's because Costco is almost 50 miles away from where I live. Although Sam's have upgraded its facilities-its help still look the same-unkempt, disinterested and unmotivated in what they are doing and only small step above the people who work at Walmart.
All you have to do is compare the prepared food at Costco and Sams to knoow what I mean. While Costco carryout dishes are restuarant quality, Sam's looks and tastes like it was leftover from a soup kitchen.
3-07-2011 @ 2:15AM
lsgm1 said...
I've belonged to both Sam's and Costco for many years. Some stuff I buy is cheaper at Sam's and some is cheaper at Costco. I like Sam's because it has at least 30% more inventory than Costco, but they are not keeping up with locations. I live within 5 miles of 2 Costcos, but the closest Sam's is 17 miles away. If Sam's would build more warehouses, it would see an increase in revenue/sq. ft. There is only one Walmart close, and it's a regular, not a super, so I go to Target most of the time. Walmart is really falling down on inventory, also - one frustrating thing is that they will carry something for 2-3 months, then stop carrying it. Very annoying.
3-07-2011 @ 6:46AM
recipejoe said...
You can not beat Costco, price wise.
Wally Mart employees are not very you know what.
Targets, B J 's and Costco's is the place to shop.
3-07-2011 @ 4:11PM
MILT MUSIKER said...
SAMS CLUB! I STOPED SHOPPING THERE 5 YEARS AGO THE FOOD PRODUCTS SUCH AS PRODUCE ARE THE WORST QUALITY I HAVE SEEN, WHEN YOU SHOP THE FOOD AISLES MOST OF THE PRODUCKS ON THE SHELF HAVE EXPIRED DATES, THE EMPLOYEES TREAT THE CUSTOMERS LIKE THEY ARE THE ENEMY..........I NOW SHOP COSTCO THEY ARE THE BEST BOX STORE OPERATION IN THE USA. I HAVE NEVER PURCHASED A BAD PRODUCT FROM THE. ALSO THEY TRACK YOUR PURCHASE ON LINE AND IF YOU HAVE A BAD ITEM THEY WILL REFUND YOU YOUR MONEY W/O A RECEIPT. AVOID SAMS CLUB THEY ARE THE WORST
3-08-2011 @ 6:13AM
RYAN said...
Ive never purchased anything at either place.We dont even have a costco here.I think the closest costco is about 50 miles from here.There is a sams club but Ive just never found anything in there that I wanted to buy.
3-08-2011 @ 7:24AM
jake said...
Sam's Club bakery sucks among the warehouse chains. But it still is the cheapest of them.