EARNINGS BEAT - WALMART TAKING SHARE FROM TARGET, HIGH-EARNERS FLOCK TO WALMART. WMT shares hit record high. TGT falls to lowest point in a year.

Short Takes

Nov 21, 2024

Walmart Outperforms. Target Underwhelms.

Target announced earnings today before market-open; after the pronouncement, TGT shares fell to the lowest point in a year.

Conversely, Walmart reported yesterday and outperformed, sending its stock to record highs.

Walmart

Walmart is pulling in more high-income earners, and presumably taking share from Target.

Americans who earn more than $100,000 annually drove three-quarters of the shift in share, CEO Doug McMillon estimated.

This shift to high-end earners isn’t new, and Walmart has noticed this trend for several quarters. McMillon reported this may be more than a fad and this new (high-end) tranche of customers may be there to stay.

Food sales were stellar this quarter. Walmart grocery sales grew at the fastest pace in four years. More high-end items were sold, too - items like grass-fed beef and “gluten-free” comprised many delivery and curbside orders.

WMT reported $169.59 billion in revenue, up from $160.80 billion a year ago, and above the $167.72 billion analysts expected.

Walmart's net income came in at $4.58 billion, beating expectations. E-commerce and advertising operations grew 27% and 28%, respectively.

Target

Target shares fell to the lowest point in a year.

TGT was the biggest decliner in the S&P 500 today.

Shares were down more than 20%.

Target’s 3Q sales - $25.2 billion - were down nearly 1% from a year ago. Net earnings declined 12.1% to $854 million from $971 million year over year.

Comp store sales declined 2%; comp digital sales were up nearly 11%, thus overall comp sales rose .3%.

According to Retail Dive, Target has cut prices on 10,000 items this year, and while this has gotten customers in the door, it has failed to lead to conversion on discretionary purchases, which Target is reliant on.

While this drew shoppers through the doors, it failed to convince them to splurge on the discretionary purchases that Target relies on,” Zak Stambor, a senior analyst with Emarketer, said.

Target lowered its guidance today and is expecting flat comps for Q4.

The new CFO Jim Lee, who joined this past September said, “Given ongoing consumer uncertainty, we believe it’s prudent to take this conservative approach, while taking swift and disciplined action to position ourselves to win during the holidays and in 2025.”

Neil Saunders, of GlobalData, said in Retail Dive, “Consumers are still spending, but they’re focused more on essentials and have become far pickier about discretionary products and have cut back on the number of impulse purchases. All these things undermine the Target model which partly relies on a robust consumer who is comfortable loading their cart with things that they want, but do not absolutely need.”

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