PRINT THIS STORY:

CHANGE TEXT SIZE:

WHAT COMPS REVEAL ABOUT TARGET, WAL-MART

If the strength of a retailer’s same-store sales is the best measure of the health of its overall business, Target Corp. is feeling a bit perkier than Wal-Mart Stores.

Minneapolis-based Target’s comps rose 5.6 percent in September, compared with 3.8 percent for Bentonville, Ark.-based Wal-Mart. The average for 100 national retailers tracked by Retail Metrics, a Swampscott, Mass.-based research firm, was 3.6 percent.

Wal-Mart’s strategy of locating more than one store in the same trade area undoubtedly lowers its same-store sales, but Target’s stock price, too, has been the healthier one, says Howard L. Davidowitz, chairman of Davidowitz & Associates, a New York City-based retail consulting and investment banking firm.

That makes it harder for Davidowitz to accept Wal-Mart’s claim that its true strength gets lost amid Wall Street’s focus on comps. If Wal-Mart is so much stronger than its same-store sales suggest, he asks, why are Target’s earnings higher?

“Wal-Mart’s same-store sales growth has been something like half of Target’s over the past couple of years,” Davidowitz said. “But the interesting thing is that Target’s earnings growth, as a percentage, also has been much faster than Wal-Mart’s. Target’s stock is up 70 percent in the last two years and Wal-Mart’s is down. It ties together — margin is likely to be stronger in a company with good same-store sales. If your sales are trending up, you’re likely to be taking fewer markdowns because you don’t need to.”

Not that Wal-Mart is on the ropes. “They’re still adding stores and market share, and they’re still adding volume and profitability,” said Neil Stern, a senior partner at McMillan|Doolittle, a Chicago-based retail consulting firm. “There is a case to be made that very successful but maturing retailers like Wal-Mart and The Home Depot are not necessarily unhealthy even if their comps are slow. When you have a mature base of stores, it is harder to continually drive more comps out of that.”

Maybe someone should tell that to Wal-Mart’s critics.

— JG