Target topped earnings views early Wednesday, but warned on the current second-quarter, citing high inventories and elevated store thefts. TGT stock was little changed. Walmart edged higher premarket Thursday after beating quarterly estimates and raising its full-year guidance. WMT stock in a buy zone following the Dow Jones giant's Thursday report.
The big retailers report in just as inflation pressures are hitting consumers hard, leaving less for discretionary spending. Consumer sentiment tumbled 9.1% from April to a reading of 57.7 in May, according to the preliminary results from the University of Michigan's monthly Survey of Consumers. The index hit a record low 50 last June.
Going into the earnings reports, analysts think Walmart has the edge over rival Target.
Following Walmart's Q4 earnings report, Third Bridge analyst Landon Luxembourg wrote, "During the pandemic, retailers like Target benefited from a trade-up consumer mentality. Now, as shoppers become increasingly cost-conscious and trade down, Walmart is in just the right position to benefit."
On Monday, Credit Suisse noted it believes Walmart is still strongly positioned for the current environment with solid defensive characteristics as inflation headwinds cause consumers to prioritize value and consumables over discretionary products.
The firm believes Walmart should have robust sales momentum, driven by food sales and its market share gains. Credit Suisse has an outperform rating on Walmart stock with a 170 price target.
Target Earnings: Price Lowered
Target reported adjusted earnings fell 6.4% to $2.05 per share early Wednesday. Revenue ticked up 0.5% to $25.32 billion. Analysts polled by FactSet expected Target earnings to tumble 19.2% to $1.77 per share on $25.27 billion in sales.
Strength from beauty, food and beverage and household essentials drove results, partially offset by softness in discretionary categories, Target reported.
Target sales grew 0.5% while total traffic increased 0.9% in the quarter.
Comparable sales increased 0.7%, which matched fourth-quarter results but fell from 3.3% growth last year, respectively. Analysts expected a 0.2% increase in comps. However, digital comparable sales fell 3.4% from last year.
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Target expects inventory shrink to reduce profitability by more than $500 million compared to last year, CEO Brian Cornell noted in the release. "While there are many potential sources of inventory shrink, theft and organized retail crime are increasingly important drivers of the issue," he wrote.
Target sees a wide range of sales outcomes for Q2 based on softening sales trends in Q1. The company expects a low-single digit decline in comparable sales on earnings ranging from $1.30 to $1.70 per share.
Target maintained its prior full-year guidance, forecasting earnings between $7.75 per share and $8.75 per share. Comparable are seen ranging from a low-single digit decline to a low-single digit increase.
The company's earnings dived last year and Target averaged a 55% quarterly per-share earnings decline in 2022.
Price Target Lowered
Also on Monday, Raymond James lowered its price target for Target stock to 190 from 195, but maintained its strong buy rating on the shares. Target's long-term margin recovery looks favorable and the firm thinks the company can sustain market share across multiple product categories, analyst Bobby Griffin wrote.
But the near-term outlook is less favorable as consumers cut back on wants and focus spending on needs.
In the fourth quarter, beverage and beauty sales propped up Target results.
Griffin also anticipates higher promotional activity in the current environment. Increased promotions typically means more deals and discounts for customers, and that can cut into margins.
Target stock retreated 4.2% to 154.13 Thursday after climbing 2.6% to 160.91 Wednesday. The move pushed the stock below its key technical lines.
TGT stock is up 3.4% year to date.
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Earnings Acceleration For Walmart Stock
Earnings for Dow Jones giant Walmart accelerated the last three quarters, improving from a 23% decline last year to a 12% jump in the fourth quarter. Sales growth hung in the low single-digit range during that period.
For Q1, Walmart reported a 13% jump in its adjusted earnings to $1.47 per share on 7.6% revenue growth to $152.3 billion.
Analysts expected Walmart earnings to edge up 1.5% to $1.32 per share on a 5.1% increase in revenue to $148.8 billion.
Comparable sales, excluding fuel, increased 7.4%, up from 3% growth last yeah but down from 8.3% in the fourth quarter. FactSet projected 5.5% comparable sales growth.
Walmart noted its U.S. stores saw strong market share gains in grocery sales, including from higher-income households as consumers trade down to save on costs. Its solid sales for food, health & wellness categories were offset by softness in general merchandise, home goods and apparel. Globally, eCommerce sales spiked 26%.
Walmart raised its fiscal 2024 guidance following the earnings beat. It now expects adjusted earnings between $6.10 to $6.20 per share, up from its previous forecast of $5.90 to $6.05 per share. The retailer expects consolidated net sales to increase 3.5% from the $605.9 billion it recorded last year. FactSet projects adjusted earnings of $6.14 per share for the year.
Walmart guided Q2 adjusted earnings between $1.63 to $1.68 per share on 4% net sales growth. The Q2 earnings projection is lower than FactSet expectations of $1.71 per share.
Walmart stock is trading in a buy zone from a double-bottom base after surpassing the 148.44 buy point on April 3. The current buy zone, which stretches 5% beyond the buy point, extends to 155.86.
Shares have been consolidating in the buy zone just above the top of the base. The current double-bottom pattern forms the handle for a mammoth cup-with-handle base going back to last April. That pattern has a 154.74 buy point if WMT stock can clear the tight action around its 154.64 level from late November.
Walmart has an 89 Composite Rating, which combines a number of technical indicators into one score. The stock's relative strength line is off highs from late April. Shares have an 83 RS Rating and 83 EPS Rating.
WMT stock advanced 1.3% to 151.50 Thursday following results. Shares edged lower to 149.58 during trading Wednesday. Walmart stock is up 6.9% this year.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison.
