Walmart Sets A High Bar For Target As Earnings Roll In - Investor's Business Daily

Dow Jones component Walmart (WMT) reported much stronger-than-expected third-quarter results early Tuesday, setting a high bar for big box rival Target (TGT), which follows suit Wednesday morning. Both Walmart and Target shares rose in early trade.

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Both blue chip retailers have struggled to maintain profit margins in the inflationary environment but one has done a superior job, at least in the first two quarters of the year. Earnings-per-share numbers on these mega-retailers in those periods told vastly different tales.

Walmart posted strong growth during the pandemic but EPS fell by 23% in the first quarter of 2022, battered by inflation. Target also struggled during this three-month period, shrinking 41% year over year.

Now comes the difference.

WMT adapted quickly to rising inflation, yielding a tiny 1% earnings decline in the second quarter. In contrast, TGT bombed out in Q2, reporting a stomach-churning 89% year-over-year contraction.

Walmart Boosts Q4, Full-Year Guidance

According to FactSet, analysts expected Walmart to report a third-quarter profit of $1.32 per share on $147.67 billion in revenue. The company reported adjusted earnings of $1.50 per share and revenue growth of 8.7%, to $152.8 billion.

The EPS gain marked mark a 3% gain compared to the same quarter last year.

Before the report, annual EPS was expected to decline 9% in fiscal 2023 and rebound 12% in 2024, lifting back above the multiyear trendline.

Comparable store sales rose 8.2% overall, while the e-commerce segment expanded 16%. Sam's Club comp sales rose 10%, with an 8% gain in membership income.

Also, Walmart management hoisted guidance for its fourth-quarter to 6% to 7% drop in earnings, and a 3% gain in sales. For the year, the company now targets a 5% EPS dip, and a 5.5% sales increase.

The company also initiated a fresh $20 billion share buy back program. This replaced the prior initiative, which still had $1.9 billion remaining.

Target Vulnerable After Long Bull Run

Analysts are looking for Target to post Q3 earnings of $2.16 per share on $26.4 billion in sales. If met, EPS will mark a 29% profit decline, compared to Q3 2021. Sales are expected to rise modestly compared to last year, like Walmart.

So, once again, this former market leader is forecast to perform far worse than its larger rival.

Annual projections highlight longer-term headwinds that may be stock specific. EPS is expected to fall 40% in fiscal 2023 and rebound 47% in 2024.

Unfortunately, that puts 2024 earnings estimates well below 2022 results.

Walmart Vs. Target Ratings

Walmart shares rallied more than 6% in premarket trade on Tuesday. Target picked up some of the slip stream, rising 3.3%.

Walmart is trading back above the 200-day moving average, after remounting that level in mid-October. On the flip side, Target broke below that level back in December 2021 and tested resistance just one time, failing an April breakout attempt. It hasn't touched this line in the sand in the last seven months.

IBD proprietary algorithms also highlight major differences in outlook for these similar retailers.

Walmart's 71 Composite Rating outscores Target's miserable 41 rating. But Earnings Per Share Ratings of 64 for WMT and 55 for TGT are pretty close.

The big difference comes in profit margins, return on equity and earnings changes, which have generated poorer Timeliness and SMR Ratings for Target. That's easy for investors to see, given the multiple quarters of inferior earnings performance since the inflation monster started to bite.

Follow Alan Farley on Twitter at @msttrader.

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