Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Target Vs. Walmart: Which Retailer Should You Bet On After Earnings?

By Haris Anwar/Investing.comStock MarketsAug 18, 2022 01:59PM ET
www.investing.com/analysis/target-vs-walmart-which-retailer-should-you-bet-on-after-earnings-200628709
Target Vs. Walmart: Which Retailer Should You Bet On After Earnings?
By Haris Anwar/Investing.com   |  Aug 18, 2022 01:59PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
WMT
+1.65%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
TGT
+4.98%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • After two years of the pandemic-driven buying spree, a change in consumer behavior has left retailers with billions of dollars of unsold inventories
  • Walmart sales are improving thanks to robust back-to-school sales, lower fuel prices, and buying by customers seeking bargains
  • Target, which generates more sales from discretionary items, is the hardest-hit retailer, with its margins plunging

The latest earnings reports from Target (NYSE:TGT) and Walmart (NYSE:WMT) indicate that the worst could be over for the two largest U.S. retailers. Despite growing inventory difficulties, sales remained resilient amid the challenging macroeconomic environment of the last quarter. 

Walmart, the world’s largest retailer, posted better-than-expected EPS thanks to robust back-to-school sales, lower fuel prices, and more buying by wealthier customers seeking bargains. 

During the earnings call, the Bentonville, Arkansas-based company also told investors its yearly profits wouldn’t decline as much as it expected three weeks ago when it issued a profit warning. 

WMT Earnings Performance
WMT Earnings Performance

Source: Investing.com

The Minneapolis, Minnesota-based Target maintained its outlook for full-year revenue growth in the low- to mid-single digit range and an operating margin of about 6% in the year’s second half.

Inventory Glut

After two years of the pandemic-driven buying spree, a sudden change in consumer behavior due to four-decade high inflation has left Walmart and Target billions of dollars of unsold inventories, hurting their margins and share prices.

Target appears to be the biggest victim of this consumer rebalancing act. The company’s net earnings fell 90%, while its operating margin declined to 1.2% in the quarter that ended July 30.

The Minnesota-based giant, which generates more sales from discretionary items than Walmart, was forced to aggressively discount its excess inventory in areas such as kitchen appliances, patio furniture, and bikes to get out of this inventory quagmire to avoid more losses.

A Glimmer Of Hope

As recession risks remain high, risk-averse investors should avoid putting their money in these retail giants. 

But if you have a higher risk tolerance, I see a bargain in Target’s beaten-down stock, which has lost about a third of its value over the past year. Walmart has mostly recovered its earlier losses, and its shares are down only about 8% during the same period.  

TGT Weekly Chart
TGT Weekly Chart

Furthermore, there are many grounds for optimism when it comes to Target. First, the retailer has been dealing more aggressively with its inventory issue than its peers. According to Target’s CFO:

“If we hadn’t dealt with our excess inventory head-on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential.”

That aggressive action puts Target on a path to recovery as the retailer could be one of the first to experience a margin recovery, given it acted so decisively. 

While raising its price target by roughly 25% to $195, Wells Fargo said in a recent note that investors are too pessimistic about the stock. Its note adds:

 “TGT took the earliest and biggest margin hit in retail, suggesting relatively lower risk from here and a faster recovery. 

Investors seem too pessimistic on recovery earnings; we see EPS of $12.70 when the dust settles in 2023 vs. a buy-side bar that seems closer to $11.”

On the macro front, there are also positive developments. With U.S. inflation slowing, some of the pressure on discretionary spending should abate, benefiting Target more than Walmart because it generates about 80% of its sales from non-food items. Target told investors its back-to-school season, often an indicator of fall and winter business, had been encouraging. 

Another great reason to buy Target’s stocks now is the company’s impressive dividend appeal. The retailer has steadily increased its dividend every year for the last 50 years, covering crises such as the dot-com collapse of the early 2000s, the financial crash of 2008-2009, and the COVID-19 pandemic. 

While delivering cash to investors each quarter, the discount store has maintained a conservative payout ratio of about 30%, showing more cash-distribution runway.

In June last year, Target announced a whopping 32% hike in its payout, scaling its dividend to $0.9 a share quarterly with an annual yield of 2.3%.

Bottom Line

Target remains on track to overcome its short-term challenges and resume its normal margin expansion. The current weakness provides an attractive entry point to long-term investors.

Disclosure: The writer doesn’t have a position in stocks mentioned in this article.

Target Vs. Walmart: Which Retailer Should You Bet On After Earnings?
 

Related Articles

Target Vs. Walmart: Which Retailer Should You Bet On After Earnings?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (7)
Mohd Izhar Muslim
Mohd Izhar Muslim Aug 19, 2022 1:52PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks for the article 💯
Phil Kimmel
Phil Kimmel Aug 19, 2022 5:15AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Costco hands down!
Venkata Nemala
Venkata Nemala Aug 19, 2022 12:00AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
when TGT does well, it does really well. WMT on the other hand is a steady horse
Venkata Nemala
Venkata Nemala Aug 19, 2022 12:00AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
when TGT does well, it does really well. WMT on the other hand is a steady horse
Joseph Obrzut
jzut Aug 18, 2022 6:22PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I own 25 WMT at 64 09/2015. I just added 2 shares at 117.  Never owned TGT. I added 2 shares TGT at 139.50. When they "crashed" nibble. They are not going out of business.
Ko Thi Ha
Ko Thi Ha Aug 18, 2022 2:22PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
goodsan
Daniel Radjan
Daniel Radjan Aug 18, 2022 2:22PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
i need to take ma money....how to retirement
Ahmed Ali
Ahmed Ali Aug 18, 2022 2:22PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ko Thi Ha
Ko Thi Ha Aug 18, 2022 2:21PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
good
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email