Wal-Mart: Back To School And Off To College Means Profits

Aug.31.12 | About: Wal-Mart Stores, (WMT)

With the recent retail numbers for August coming in stronger than expected, take a guess as to what the second busiest (and most profitable) time of year is. Well if you read the title of this article, you guessed right. Back to school and off to college spending is second in revenues and profits only to the holiday season each year.

Wal-Mart (NYSE:WMT) does not report monthly sales figures but one can readily assume that they are probably the single largest beneficiary of this season's spending. As far as I am concerned, this is yet another reason why shares of WMT should be firmly inserted into just about any prudent portfolio. For value as well as growth.

The National Retail Federation puts annual sales of this particular season at roughly $85 BILLION. Billion not million. Just for the back to school off to college retail spending season. If I am not mistaken the entire season lasts about a month or two at most and then all the kids are back.

According to this article, "Combined K-12 and college spending will reach $83.8 billion**, serving as the second biggest consumer spending event for retailers behind the winter holidays."

That is a lot of spending folks, and it is my belief that Wal-Mart shareholders could be pleasantly surprised when their next earnings report comes out. According to another report from the National Retail Federation, discount stores make up a stunning majority of all sales during this period.

Nearly 60% of all sales for K-12 school years, and almost 50% of all college shoppers, as noted;

" ... discount retailers will remain the top shopping destination for last-minute back-to-school shoppers (56.9%)."

Last time I checked, Wal-Mart was the largest discount retailer on the planet. I think it is safe to assume that their share of this "pie" will reflect their size and impact.

The Basics

  • YOY revenue growth came in at 4.5%.
  • YOY earnings growth came in at 5.7%.
  • $460 billion in revenues and $111 billion in gross profits.
  • $26 billion in operating cash on hand.
  • A dividend yield of about 2.3% which has increased for over 25 consecutive years.
  • A tiny 32% dividend payout ratio which could mean more increases which are wonderfully secure.

Every metric has been in an uptrend. I especially like the dividend and shareholder equity story.

My Opinion

As a dividend growth investor, there has been no better retail stock that Wal-Mart. I happen to believe that the company is still growing as well.

I would suggest a long position in WMT at the current price.

Disclosure: I am long WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.