Target (TGT) Is Off-Target Again; Target Again Follows Up Strong Walmart Results With A Miss
2:40 pm Wednesday, November 16th, 2022
Target (TGT) has done it again. A day after Walmart (WMT) posts big upside results and gets investors excited for Target’s report the next day, Target then reports a disappointing result. This happened in Q2 (Jul) and now again in Q3 (Oct).
The stock is down big today after the retail giant missed badly on EPS, missed slightly on revenue and made cautious comments about the upcoming Q4 (Jan) holiday period, including that consumers are showing increasing signs of stress and pulling back from discretionary purchases, a pattern that worsened at the end of the quarter. That is not exactly the ringing endorsement you want to hear from a retailer heading into the holidays.
Same store comps were not awful at +2.7% considering that Target was lapping huge +12.7% comps. However, that trailed Walmart US comps (ex-fuel) of +8.2% by a wide margin. Comps were led by growth in frequency items like Beauty, Food and Beverage and Household Essentials, which offset continued softness in discretionary categories. The Q4 comp guidance was more troubling. TGT sees a wide range of possible outcomes in Q4, centered around a low-single digit comp decline.
What is troubling is that Target saw comp growth well above 3% during the first two months of the quarter, but then saw a deceleration to just under 1% in October. Even within October, results in the back half of the month were much softer than in the first half. Furthermore, while already soft, sales trends in discretionary categories softened even more in the last few weeks of the quarter — a trend that has persisted into the first few weeks of November. Timing matters, it is worse to see a retailer close a quarter with weakness, because that likely extends into the next quarter. Also, the mix of Q3 sales tilted much more heavily towards promotions, which caused a headwind to margins.
Overall, this was another disappointing quarter for Target and the retail outlook generally. Walmart got us excited with its big beat and robust comps. Walmart even said it was seeing early signs that inflation was moderating which echoed the better-than-expected October PPI and CPI data. Then, Target comes a long and pours cold water on all of that optimism. Hopefully, Target’s concerns about the upcoming holiday season turn out to be more company-specific, but we fear that is not the case. But it was definitely two different tones from two retailers that should be pretty similar. Finally, in recent years, it was Target that was consistently outperforming Walmart, but the tables have turned over the past two quarters.
