TargetOn Wednesday, one day later, the company’s shares fell to a 52-week low Walmart Shares soared to record highs – and earnings reports from rival retailers once again highlighted the differences in their performance.
Target Biggest profit mistake revealed within two years and revised forecasts downward. The company spoke of a “deceleration in discretionary demand” and blamed higher costs on a rush to move inventory ahead of a brief port strike in October.
On the company’s earnings call, CEO Brian Cornell said U.S. consumers “are shopping cautiously, trying to overcome the cumulative impact of years of price inflation” and holding out for the best deals .
On the other hand, Walmart Full-year forecast raised. The company said it is attracting higher-income shoppers and is seeing better sales trends outside of the grocery department, even as consumers look for value.
Both stores are experiencing similar customer traffic growth, but Walmart’s sales trends look much better than Target’s. Walmart’s traffic growth outpaced its competitors, with Walmart US growing 3.1% and Target growing 2.4%. Walmart’s same-store sales increased 5.3% year-over-year, while Target’s grew only 0.3%. Walmart’s U.S. e-commerce sales grew 22%, faster than Target’s nearly 11% increase.
The vast differences between the two major retailers, and how their businesses perform against the same economic backdrop, illustrate where consumers are willing to spend money and where they are scaling back as they remain selective about their spending. As retailers enter the most critical sales season of the year, a sharp divide between the industry’s winners and losers may become more apparent.
DA Davidson retail analyst Michael Baker said Target’s disappointing results reflected the company’s performance, not the health of consumers.
“It’s as simple as this: They’re losing market share,” Baker said. “They are losing market share to Walmart, Amazon and Costco.”
He said Target’s inconsistent results over the past year were a red flag about execution. The company missed Wall Street’s quarterly sales and profit forecasts in two quarters and beat them in the other two quarters.
“This back and forth makes you wonder if there’s something going on internally,” he said.
Several equity research analysts, including Citi Research, Deutsche Bank AG and HSBC Global Research, downgraded Target Corp.’s stock on Wednesday, citing concerns about the Minneapolis-based retailer’s shoppers. and sales were lost to competitors. Its shares fell more than 20% in trading on Wednesday.
Citi retail analyst Paul Lejuez said in a research note that the company’s poor results and weak outlook suggest Target “could lose share” to Walmart and that if it doesn’t ramp up promotions If you don’t do enough, you risk losing more market share.
Goldman Sachs retail analyst Kate McShane said one source of Target’s troubles is the company’s merchandise mix. About 60% of Target’s sales come from discretionary items such as home goods and clothing. That’s in contrast to Walmart, which gets about 60% of its sales from everyday staples like groceries and household items like paper towels.
These discretionary categories, where customers sometimes splurge or scale back, explain “some of the volatility and bumpiness you’re seeing that is unique to Target,” she said.
Both Walmart and Target cited the negative impact of the port strike, but Target appeared to blame the shutdowns as much of the reason for the weak quarter.
Baker, of Davidson, the district attorney, said weak sales could “make such cost increases more salient.”
Target has other questions affecting its future, including who will lead the company. Cornell has served as CEO since 2014 and agreed in September 2022 to continue leading the company for another three years.
In a conference call with investors on Wednesday, Cornell noted that despite disappointing sales results, there are “green shoots” in the business. He cited rising customer traffic, growth in online sales and relatively strong apparel sales, despite unseasonably warm weather that deterred shoppers from buying cooler clothes.
On the same conference call, however, several analysts raised questions about Target’s future plans. UBS equity research analyst Michael Lasser asked Target if it needed to make changes or invest more in its business.
Cornell said the company will stick with what it has been doing: offering unique merchandise and national brands, opening new stores, expanding advertising and giving shoppers more ways to buy online.
“We will continue to execute on our current strategy to stay in sync with consumers and ensure that what Target does is aligned with what American consumers expect from us,” he said.
