This paper compares selected financial performance data for Walmart and Target for the fiscal years ending January 2012 and January 2013. Drawing on each company's 10-K filings, the analysis examines revenues and revenue growth, cost of goods sold as a percentage of revenue, days sales outstanding, accounts payable periods, and inventory management metrics including days inventory held and inventory turnover. The findings reveal that while Walmart generates revenues more than six times larger than Target, Target maintains a lower cost of goods relative to revenue. Walmart demonstrates advantages in receivables collection speed and inventory turnover, whereas Target takes longer to pay suppliers but also holds stock for more days on average.
Walmart and Target compete in very similar markets, both operating in the supermarket segment of the retail industry with some diversified interests. To assess the performance of these two firms, their results for the fiscal years ending January 2012 and January 2013 may be examined and compared. This paper evaluates performance in terms of revenues, cost of goods sold, accounts receivable, accounts payable, and inventory management.
An assessment of firm performance often begins with the revenue generated and how it changes over time. The revenues for both Walmart and Target are shown in Table 1 below.
Table 1: Revenue for Walmart and Target, 2012–2013 ($ millions)
Walmart: 2012 — $446,950 | 2013 — $469,162
Target: 2012 — $69,865 | 2013 — $73,301
These figures demonstrate that Walmart is the larger firm by a wide margin; its revenues are more than six times the size of Target's. Nevertheless, both firms show revenue growth. In the fiscal year ending January 2012, Walmart recorded the larger proportional gain at 5.95%, compared to Target's 3.67%. In fiscal year 2013, Target achieved the larger proportional gain, though in nominal dollar terms Walmart still increased its revenues by a greater absolute amount. Both companies are growing their top lines.
The cost of goods sold (COGS) is a critical component of a firm's expenses; revenue less COGS equals gross profit. The most meaningful way to compare COGS across firms of very different sizes is to express it as a percentage of revenue, which yields the gross profit margin.
Table 2: Cost of Goods Sold for Walmart and Target, 2012–2013
Walmart COGS (% of revenue): 2012 — 75.0% | 2013 — 75.1%
Walmart Gross Profit Margin: 2012 — 25.0% | 2013 — 24.9%
Target COGS (% of revenue): 2012 — 69.1% | 2013 — 69.6%
Target Gross Profit Margin: 2012 — 30.9% | 2013 — 30.4%
The results indicate that Walmart's cost of goods is higher relative to revenue than Target's, accounting for 75.0% and 75.1% of revenues in 2012 and 2013, respectively, compared to Target's 69.1% and 69.6%. One might expect that Walmart's greater size would generate economies of scale, resulting in a lower COGS ratio; however, this does not appear to be the case. Other factors may explain the difference, including Walmart's lower pricing strategy, which compresses gross margins, and a different product mix with inherently lower margins. Both firms experienced an increase in their COGS ratio in 2013 relative to 2012, though the proportional increase was smaller for Walmart, resulting in a marginally lower impact on its gross profit margin.
"Days sales outstanding for Walmart and Target"
"Supplier payment periods compared across firms"
"Days inventory held and turnover rates"
"Summary of relative strengths and weaknesses"
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