Financial Comparison of Target and Costco Corporations

By: Roya Saqib and Nadine Walker-Mooney

July 30th 2014

COST

TGT

Financial Analysis of Target and Costco Corporations

Introduction to the Department Store Industry

Introduction of Target Corporation-- corporate History and impact of

sub-prime mortgage crisis of 2007-2008

Introduction of Costco Wholesale Corporation--corporate History and

impact of sub-prime mortgage crisis of 2007-2008

Financial Ratio 2008 and 2013 Comparisons

Stock Price Comparisons of Target and Costco With S&P500

Question and Answer

Introduction to the Department Store Industry

Costco an Target Corps, function within the department store industry. In this industry Companies

engage in selling a wide range of products with no one merchandise line predominating. These

products include apparel, furniture, appliances, home goods, paint, hardware, toiletries, cosmetics,

photographic equipment, jewelry, toys, and sporting goods.

In general this industry was impacted hugely by subprime crisis from 2008 to 2010. But the

companies were impacted differently due to different factors.

Target Corporation– Brief Overview:

2nd Largest Store Discount Retail in the United states. #36th in Fortune 500

Hudson Dayton company (retail store company) founded in1902, 1962 first discount target store,

1965. In 2000 E-commerce and name was changed to Target Corporation

Three segments (US retail, Target Credit Card, and Canadian) International expansion in 2011

DATA Breach 2013, affected its profit margin, stock prices in last quarter, and reputation.

Recovered in 2014

Stock prices fell down by 54% in 2008 FY. Because Target is depending largely on debt as you will

see in our ratios

Costco Wholesale Corporation-Brief Overview

Introuduction of Costco Wholesale Corporation

Corporate History

Affects of sub-prime mortgage crisis of 2007-2008

Debt Management Ratio-The Lower, the Better

COST 2008 TGT 2008 COST 2013 TGT 20130.00%

50.00%

100.00%

150.00%

200.00%

250.00%

124.11%

221.66%

171.34% 174.49%

Debt to Equity Ratio

COST 2008 TGT 2008 COST 2013 TGT 20130.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

55.16%

68.91%

62.57% 63.57%

Total Debt Ratio

Debt Management Ratio-The higher, the Better (should be at least 1)

COST 2008 TGT 2008 COST 2013 TGT 20130.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

19.18

4.08

30.84

2.76

Times Interest Earned Ratio

Asset Management Ratio-The higher is the Better

COST 2008 TGT 2008 COST 2013 TGT 20130.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

3.50

1.43

3.55

1.63

Total Asset Turnover

COST 2008 TGT 2008 COST 2013 TGT 20130.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

14.08

9.38

12.30

8.28

Inventory Turnover Ratio

COST 2008 TGT 2008 COST 2013 TGT 20130.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

3.77

46.92

4.170.00

Days Sales Outstanding

Asset Management Ratio-The Lower, the Better

COST 2008 TGT 2008 COST 2013 TGT 20130.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

1.77%

3.52%

1.96%

2.72%

Profit Margin

COST 2008 TGT 2008 COST 2013 TGT 20130.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

6.20%

5.02%

6.95%

4.42%

Return on Asset (ROA)

Profitability Ratios--The higher, the Better

COST 2008 TGT 2008 COST 2013 TGT 20130.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

13.95%

16.15%

19.03%

12.14%

Retuen on Equity (ROE)

Profitability Ratios--The higher, the Better

Liquidity Ratios--The higher, the Better

COST 2008 TGT 2008 COST 2013 TGT 20130.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

1.07

1.66

1.21

0.91

Current Ratio

COST 2008 TGT 2008 COST 2013 TGT 20130.00

0.20

0.40

0.60

0.80

1.00

1.20

0.50

1.03

0.58

0.22

Quick Ratio

Market Value Ratios

COST 2008 TGT 2008 COST 2013 TGT 20130.00

5.00

10.00

15.00

20.00

25.00

30.00

23.20

10.27

24.16

18.19

Price Earning Ratio (P/E) The higher the better

COST 2008 TGT 2008 COST 2013 TGT 20130.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2.25

3.22

2.74 2.74

Equity Multiplier. The lower, the better

Stock Prices from end of 2008 to presentTarget Corporations (TGT). Falling from $61 in 2007 to $28.31 (-54% change) in 2008 FY. While it recovered very slowly from 2009 to 2013.

Coscto Corporations (COST). Was not impacted much in the first 2 quarters of 2008 and its stock Price was around $ 64 till Sep 2008. However, at the end of 2008 FY (Sep 2009) prices fell to $56.38 (-13% change). Recovered quickly by the end of 2010 FY, as the price rose to $64.93 again and it has been steadily rising since then to over $115

Stock Price Changes from 2008 to 2014, comparing to S&P 500.

Future Prospects Target: The company's revenue increased from $69.86 billion in 2012 to

$73.3 billion in and its net income increased from $2.92 billion in 2012 to $2.99 billion in 2013

Its dividend had continuous growth over 47 years. had a growth of 20% over the past 10 years. Current 3.6% dividend.

With the rising trend of e-commerce business, there is huge potential for the company to increase its profitability through its online business.

Huge debt burden is making it a risky investment and vulnerable to market fluctuation and economic changes.

Any reduction in revenues and operating cash flows could hinder the company’s ability to repay interest and principal, resulting in default.

Future Prospects:

According to Costco Warehouse Corporation, their future prospects for strong growth can be insured by enhancing its e-commerce retail operations, by opening new stores in new communities and by infiltrating current markets. By 2018, Costco plans to double its 608 number of warehouses.

But, despite Costco’s steady addition of quality vendors and the quality products these vendors produce along with the fair prices Costco pays for their products, the biggest threat to its expansion appears to be from its high dependence on these vendors who are challenged by growing competition and labor issues.

Costco is optimistic, however, that the excellent relationships it has with its vendors, and its constant search for new ones, will weather any threats to its long-term strategic growth.

Questions