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Unformatted text preview: Paul Huettner Accounting Final Due 12/8/10 Sears, Roebuck, and Co. & Wal-Mart: A Comparative Analysis Sears and Wal-Mart are two of the historical giants of the U.S. retail market. Both companies compete against each other and other retailers to offer its customers a wide variety of products all in one place. Both stores sell the same goods such as automotive products, clothes, and appliances, but have their differences as well Wal-Marts grocery supercenters for example. At the same time, they appeal to slightly different segments, in that Wal-Mart, with its commitment to low prices, appeals to people lower on the economic ladder. Both companies have demonstrated their ability to remain profitable, but ultimately only one company can be recommended by our protagonist investment banker Mr. Don Edwards. Therefore, a thorough analysis of the two companies financial statements is necessary in order to determine which is currently performing better and will continue to do so in the future. Looking at their respective income statements, balance sheets, cash flow statements, and other notes will allow for this thorough analysis. A Comparison Stores and their usage At first glance, Searss variety of stores is surprising. Overall, Sears has six different types of stores as well as an other category. This companys historical trend is one of expansion and diversification. Starting as a catalog business, they expanded to retail stores and then opened specialty stores such as their automotive and home stores. Unfortunately, for management this specialization also led to lower profits. The properties table states that although Sears was opening far more stores than it was closing, it was closing stores at an increasing percentage year over year while opening stores at a declining rate. Furthermore, the specialty Sears outlets were being closed at a much higher percentage than the full-line stores when compared to their proportion of total stores. Even more troubling, selling square feet growth is weakening with a 10% increase from 1995 to 1996 then shrinking to 3% going into 1997. Ultimately, Searss stores are underperforming year over year as seen from the declining revenues per square foot statistic. Percent Change in Amount of Stores From Previous Year Year 1996 1997 Jan. 1 13.8% 9.8% Opened-7.4-17.5 Closed 52.8 63.6 Dec. 31 9.8 4.7 Similarly, Wal-Mart has continued to expand the amount of stores, albeit at a lesser rate than Sears. Wal-Mart only closed 14 stores, less than 0.5% of the total stores at 1998 year end, over the same period Sears closed 362 stores, over 10% of total stores at 1997 year end. Wal- Mart is clearly concentrated on opening large square footage stores that will remain open and profitable for years if not decades. Total square footage is over two times that of Sears....
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