Walmart and Target earnings and outlook: key trends for retailers

Target and Walmart both cater to more frugal shoppers, but the two saw very different results when it came to big-box retailers. they earn dollars.

Target missed Wall Street’s sales expectations for its fiscal second quarter. Walmart beat Wall Street’s revenue estimates for the three-month period. Target cut its forecast for the year, while Walmart raised its forecast.

The different performances of the companies show some key differences of the retailers.

Walmart, the nation’s largest grocer, generates more than half of its annual revenue from grocery sales—a category that shoppers buy even when times are tight. Target gets about 20% of its annual revenue from groceries, which makes it more reliant on selling items like clothing, earrings and pillows, which customers can skip when they’re feeling thrifty.

Target, which tends to attract more affluent customers than Walmart, could see a more dramatic shift in spending as consumers splurge on Taylor Swift tickets and European vacations. These shoppers may also try to offset the splurge on services by shopping at Walmart or other places considered cheaper. The TJX CompaniesTJ Maxx, owned by Marshalls and Home Goods, posted annual sales and profit growth earlier this week.

However, the contrasting results of Target and Walmart also suggest that some retailers are more successful than others in catering to the volatility. consumers and navigating economic winds.

Wall Street added to the confusion with its counterintuitive moves. It piled on Target’s stock on Wednesday after its earnings reports and sold off Walmart’s stock on Thursday. The potentially surprising moves could reflect the companies’ recent stock performance, as Walmart’s stock is up about 10% this year, compared with a roughly 13% decline in Target stock over the same period.

Despite their differences, the companies showed they still have a lot in common. Leaders at Target and Walmart offered similar descriptions of American consumers who think twice before spending on non-essential items while paying more for food.

“As we look at the consumer landscape today, we recognize that the consumer is still facing the same levels of inflation that they’re seeing in food, beverage and household items,” Target CEO Brian Cornell said on a call with reporters. “So it eats up a bigger chunk of their budget.”

Walmart Chief Financial Officer John David Rainey echoed similar sentiments in a call with CNBC, describing consumers as “selective or savvy.”

However, both executives added that shoppers can be persuaded to spend with a good deal or as they prepare to celebrate holidays or seasonal events.

Here’s a closer look at three key ways in which Target and Walmart’s most recent quarterly results differed:

Some retailers have seen double-digit declines in online spending as shoppers go global again.

Target followed suit in the second quarter. Its digital sales fell 10.5% year over year.

Walmart bucked that trend. Walmart’s US e-commerce sales rose 24% in the second quarter.

Both retailers cited curbside pickup as a key driver of online sales — a key differentiator from the competition Amazon.

Walmart chalked up online sales gains to in-store pickup and delivery, as well as more advertising revenue. He also took into account the third-party marketplace, where Walmart has taken Amazon’s online business model. The online marketplace consists of sellers who list products on Walmart’s website, which helps expand the product range and comes with a higher profit margin than selling products directly online.

Customers are visiting Walmart’s website and app more often, Rainey said. Weekly active digital users grew more than 20%, he said on the company’s earnings call. Walmart’s marketplace shoppers grew 14% in the second quarter, with double-digit growth across home, apparel and hardwear lines, including sporting goods and appliances.

Target lags behind in online sales. But it is making moves to try to reverse the trends.

Target Chief Growth Officer Kristina Hennington said on Wednesday’s earnings call that the retailer will implement a redesign of its digital experience over the next three months. The website, he said, “will include diverse landing experiences, more personalized content, improved search functionality, ease of navigation and other updates to bring more joy and convenience to our digital guests.”

Walmart, for its part, updated the look of its website and app in the spring.

Target will provide another advantage to attract more online businesses. Starting this summer, Starbucks is adding drinks to curbside pickup at most stores.

For more than a year now, Americans have generally been reluctant in the spring for new clothes, gadgets or other things they can live without.

This has made life difficult for retailers who rely on big-ticket and impulse-driven purchases to boost sales. Commodities tend to be more profitable than selling staples like milk, bread, and paper towels.

Rainey, Walmart’s CFO, pointed to signs that could change. He said there was “modest improvement” in discretionary goods in the second quarter, although overall merchandise sales were still down in the low double digits year over year. He said sales of blenders, hand mixers and other kitchen appliances have increased as some consumers cook more at home.

The target did not see the same relief. Sales of frequency categories such as food and beauty products were not enough to offset weak discretionary sales at retail.

Target’s Hennington said trends in discretionary categories “remained generally soft.” He noted some exceptions, including the popularity of Taylor Swift vinyl and colored Stanley bottles made with Chip and Joanna Gaines.

However, both retailers said they are stocking up on essentials and placing more modest orders for products that suit their preferences. Target, for example, said at the end of the second quarter that its overall inventory levels were down year-over-year — but it further reduced discretionary inventory.

Retailers are worried as food prices remain high, interest rates rise and student loan payments return.

But Walmart and Target struck contrasting tones when talking about the months ahead.

Target CEO Cornell said sales trends improved in July, but not enough for the company to lower its forecast for the year. When asked about the return to school, Cornell and Chief Financial Officer Michael Fiddelke emphasized that it is too early in the season.

Walmart struck a more confident note. On the earnings call, CEO Doug McMillon said total merchandise sales exceeded the company’s expectations. He said the popularity of GLP-1 drugs, such as Ozempic, used for diabetes and weight loss, could also boost foot traffic and revenue.

And he added that “the trends we’re seeing in general merchandise sales make us feel more optimistic about these categories in the second half of the year.”

Back-to-school is off to a better start than the company predicted, McMillon said. He said spending was tied to year-end consumer spending — which could be a positive sign for the critical holiday season.

“Typically when back-to-school is strong, it ties in well with Halloween and Christmas and what happens with GM (general merchandise) in the back half,” he said.

Target shared similar hopes that as the pumpkin spice season and gift-giving approaches, customers will open their wallets and reverse the retail slump. It saw traffic and sales trends improve in July, which it attributed in part to spending on the 4th of July holiday.

“We know our guests want to celebrate cultural and seasonal moments, and they will lean toward those moments in a big way in the third quarter and the upcoming holiday season,” Hennington said.