Target earnings in focus as Walmart tightens grip

Target shares edged lower in Tuesday trading, extending their recent pullback and widening the gap with peer retail giant Walmart ahead of its fiscal-second-quarter report due out prior to tomorrow's opening bell.

The Minneapolis company ( TGT ) , which suffered its worst trading day in nearly two years following a disappointing set of first-quarter earnings this spring, has struggled to recapture market share lost to its larger rival, Walmart ( WMT ) , since the 2020 pandemic.

Consumers, pinched by stubbornly high inflation and soaring food prices, have gravitated to Walmart and its 'Everyday low prices' strategy, sending shares of the world's biggest retailer to a record earlier this month.

Target, by contrast, has suffered a series of missteps under Chief Executive Brian Cornell in attempting to regain its once-dominant position. It unveiled a new membership plan, dubbed Target 360, only earlier this year.

Same-store sales have also been in decline, particularly in the group's core "frequency" categories of beauty, food and beverage, and essential household products, as consumers search for deals across the retail spectrum.

Target Circle-back

Target's effort to lure those shoppers back includes the $99-per-year Target 360 memberships, which offer free same-day delivery. It has also focused on a broad array of price cuts, with Cornell vowing to reduce the cost of around 1,500 products and 5,000 grocery items throughout the summer months.

The group also hyped its Target Circle Week sales event, which took place in early July. Placer.ai said the six-day effort "drove a major year-on-year visit boost" of around 8.7%.

That ultimate result will be tested with Wednesday's fiscal-Q2 report, in which analysts are expecting Target to post a bottom line of $2.18 a share, near the midpoint of the group's $1.95 to $2.35 forecast.

Related: Walmart stock soars to record high on Q2 earnings, profit forecast

Group revenue, meanwhile, is estimated at 2% above the year-earlier figure, at around $24.9 billion, while same-store sales are forecast to be around 1.2% higher, according to LSEG data.

"We see [comparable] sales inflecting positive in the second quarter and accelerating in the second half of this fiscal year, due to strengthening store traffic as a result of recent value offerings, price cuts, and fresh/new assortment," a  CFRA senior equity analyst, Arun Sundaram, said in a recent note.

"We also believe Target's revamped loyalty program, including the recent launch of the Target Circle 360 membership, can drive comparable-sales upside," added Sundaram, who lifted his price target on the group by $16 to $176 a share in late July.

"On margins, there is some risk given ongoing wage pressures and investments in price and Target Circle 360, but we think these headwinds can be more than offset from [anti-theft] initiatives, lower freight costs, and other cost savings measures," he noted.

Walmart stock at record high

Target's earnings, and especially its full-year outlook, will also be cast in the shadow of Walmart's stronger-than-expected update last week.

The world's biggest retailer notched sales of $169.3 billion and saw its membership fees rise 16% and its online sales surge 22% from year-ago levels.

Walmart also forecast Wall-Street-beating earnings of $2.35 to $2.43 a share for the full year, with sales rising between 3.75% and 4.25% from the $648 billion tally in the year earlier.

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"So far, we aren't experiencing a weaker consumer overall, [but] while we have not seen any additional fraying of consumer health in our business, other economic data out there, as well as the state of affairs globally, would suggest that it's prudent to remain appropriately cautious with our outlook," Walmart's finance chief, John David Rainey, told investors on August 15.

Target's full-year outlook sees same-store sales flat or 2% higher to 2023 levels, with earnings in the region of $8.60 to $9.60 a share.

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"As we look ahead to the remainder of 2024, our team is focused on getting back to top-line growth," Cornell told investors on May 22.

"We expect that will begin in the second quarter as we build on the remarkable gains we've seen over time," he added. "Like the U.S. consumer, our team has shown remarkable resilience during an extended period of exceptional volatility."

Target shares were last marked 1.15% lower in midday trading and changing hands at $143.47, a move that keeps the stock in negative territory for the year.

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