Target reported third-quarter earnings far below estimates early Wednesday and warned on the holiday quarter, citing weakening consumer spending trends. TGT stock plunged.
That's in sharp contrast to Walmart. The world's largest retailer reported a surprise EPS gain, albeit a slim 3%, while Walmart U.S. same-store sales jumped 8.2%. The Dow Jones giant also raised guidance. Walmart also continued to show progress in bringing down inventories, after consumers backed off big-ticket items earlier this year.
WMT stock jumped 6.5% on Tuesday, breaking out from a handle buy point. Walmart shares fell slightly early Wednesday.
Target Earnings
Target earnings tumbled 49% to $1.54 a share vs. views for $2.18. That's after plunging 89% in Q2 and 41% in Q1, amid costly inventory liquidations.
Sales rose 3.4% to $26.52 billion, just topping forecasts for $26.4 billion. Same-store sales climbed 2.7% vs. estimates for 2.2%.
Target sees declining sales in the crucial holiday fourth quarter.
"Based on softening sales and profit trends that emerged late in the third quarter and persisted into November, the company believes it is prudent to plan for a wide range of sales outcomes in the fourth quarter, centered around a low-single digit decline in comparable sales, consistent with those recent trends," Target said in its earnings release.
Beyond that, the company said it had launched an enterprise-wide efficiency effort aimed at streamlining operations. It offered little detail on the focal points of this effort, but said it was shooting for savings of $2 billion to $3 billion over the next three years.
Target Stock
Target stock plunged 13% to 155.50, gapping below its 50-day line. On Tuesday, TGT stock gained 3.3%, testing its 200-day line, in response to Walmart earnings and rosy fourth-quarter guidance.
Target stock had been working on a bottoming base with a 183.99 buy point.
WMT stock edged up 0.7% on Wednesday after jumping 6.5% on Tuesday, breaking above a handle buy point.
Retail Stocks Seek Ways To Overcome Inflation
Retailers have struggled to maintain profit margins in the recent inflationary environment. Analysts are rewarding those who found ways to increase their prices and profits through creative marketing, promotional sales or boosting their online presence.
Last week, Target announced it will roll out a new store format in 2023 designed for online shoppers, same-day delivery and curbside pickup offerings. The new stores will be roughly 20,000 square feet larger than the chain's average store size.
"Target's stores are at the heart of how we deliver for our guests, whether they browse the aisles, shop online or stop by for same-day services like Order Pickup and Drive Up," said John Mulligan, executive vice president and chief operating officer of Target.
However, that may be a little late for this year's holiday shopping season.
The big difference comes in profit margins, return on equity and earnings changes, which have generated poorer Timeliness and SMR Ratings for Target. That's easy for investors to see, given the multiple quarters of inferior earnings performance since the inflation monster started to bite.
Target warned that Q4 operating margins will be only about 3%.
TGT is ranked No. 4 in IBD's Retail-Discount Chains industry group, behind leaders Costco Wholesale, PriceSmart and Walmart. Target's Composite Rating is a low 56, and its Relative Strength Rating is 39.
Follow Michael Molinski on Twitter @IMmolinski
