First Walmart, Now Target Confirm Why We’re Bullish on This Holding
The latest results tell the story of which company is taking wallet share.
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Quarterly results on Wednesday morning from Target TGT were a disappointment relative to market expectations for its October quarter and the current one, which includes the holiday shopping season. Those results and guidance also offer a sobering counterpoint to Walmart’s WMT results and guidance on Tuesday that pointed to Walmart delivering 9% to 10% year-over-year revenue growth in the current quarter.
In Tuesday's Daily Rundown video, we shared that the standout comment from Walmart was the one about its share gains coming from folks whose annual income is over $100,000. That, along with Walmart’s October U.S. comp sales of 5.3% compared to Target’s 0.3% comp sales increase for the same period, signals that consumers of all shapes and sizes are trading down as they continue to contend with higher prices and sticky inflation.
Digging into that comp sales figure from Target, we find it benefitted from a 10.8% gain in digital sales, which more than offset the 1.9% decline in comp store sales during the quarter. On Tuesday, we sized up Walmart’s comp sales data against August, September and October monthly comp sales reports from Costco COST. That comparison showed Costco was taking greater consumer wallet share than Walmart. Comparing Costco’s U.S. adjusted comp sales as well as its monthly e-commerce figures, which ranged between 19.3% to 23.3% over the August-October period shows that it is eating Target’s lunch.
In reviewing Target’s comments for its October quarter, it shared that its Food & Beverage business was up low-single digits year over year. Yet, its store comp sales fell 1.9% year over year, which tells us that the company was losing share in other categories. Target’s guidance for “approximately flat comp sales” in the holiday shopping-filled January quarter suggests a competitive retail environment and one in which it is likely to be left behind.
During Target’s earnings call, we’ll be listening for comments about its other reporting segments that span apparel, beauty, hardlines, home furnishings and household essentials. We’ll also be interested in Target’s comments about discounting and promotional activity and how that may factor into its comp sales forecast. Those comments will clue us into what we’re likely to hear when Nordstrom JWN, Best Buy BBY, Macy’s M and others report ahead of the Black Friday-Cyber Monday shopping weekend.
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At the time of publication, TheStreet Pro Portfolio was long COST.
