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Sears Vs Walmart
52
Corporate profile
Walmart 1 - Sears 0
Their financial performance
Total Revenues
Sears 9% Walmart 12%
Earnings
Revenue Streams
Sears Revenue
61% of Sears' sales was on credit.
Sears' proprietary credit card accounted for 55% of total sales.
Walmart Revenue
The majority of Walmart's revenues is from cash sales.
Primary costs & Margins
Margins
COGS, SGnA of Sears & Walmart
Sears
Sears seems to have better margin performance, but look again!
Sears & Walmart
Considering only the core business
Walmart
Core performance
Sears' retail business is loss making
Walmart is a profitable retailer
Their financial position
Sears Vs Walmart
Assets
Working capital
Working Capital
Working Capital composition
Sears' working capital is tiedup in Credit card receivables, over which Sears' has little control
Asset composition & quality
Long Term asset composition
Long term assets
Long term assets composition
But these numbers are misleading. Land was acquired long ago & operating leases hide a lot of assets.
All leases as % of total assets
Financing Mix
Core capital composition
Core capital
Financing
Non core capital
Sears: USD 17,259 Mn
Walmart: USD (8,283) Mn!
New billed amount
Balance rolled over
55%
Sears' Credit card sales
Card holder pays <100% of billed amount
Buy merchandise from suppliers
Non core capital
Pay in 30-60 days
MC/Visa/Amex pays 100% of billed amount in 30-60 days
Other card & cash sales
No risk for cash sales
Credit sales
MC/Visa/Amex pays 100% of billed amount in 30-60 days
Buy merchandise from suppliers
Pay in 90 days
No risk for cash sales
Cash sales
Which is the better company?
Other considerations
Selling performance
Walmart has superior merchandizing capability, atleast at present.
1. Poor debt recovery practices (Sears)
2. Pension liabilities (Sears)
3. Inventory management (Both)
Selling area
Area efficiency
Stores
Sears' card receivables
Merchandise sales in P&L
Operating cashflow in Stmt. of CF in current/future period (Real profit)
Sears' card sales
Part paid in 1st/2nd/nth billing cycle
Unpaid balance
Levy of interest & usage fees every billing cycle; Credit revenues in P&L.
Credit card receivables in Balance Sheet
Unpaid balance
Securitized & Sold!
Charges & Fees
Securitization & Sale of credit card receivables
Customer unwilling/unable to pay after several billing cycles. Recognition of uncollectible amount.
Third party investors
Master Trust
1,000
989
967
955
914
856
Credit enhancement & Tranching
Certificates for unsold tranches
Retained by trust & Unable to sell
Sears
Certificates represented as Retained interest in transfered credit card receivables in Balance Sheet
Provision for uncollectible accounts in P&L in period of recognition
Balance Sheet contra account adjustment
Allowance for uncollectible accounts in Balance Sheet
Written off gradually; Not evident!
Contra account reduced & recognition of profit in P&L
Unrecoverable