Dow Jones component Walmart (WMT) reports third-quarter results ahead of Tuesday’s opening bell while big box rival Target (TGT) follows suit on Wednesday morning. 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 last two quarters.
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Earnings-per-share numbers on these mega-retailers tell vastly different tales.
Walmart posted strong growth during the pandemic but EPS fell by 23% in the second 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 third quarter. In contrast, TGT bombed out in Q3, reporting a stomach-churning 89% year-over-year contraction.
Walmart Rising To Inflation Challenge
According to FactSet, analysts expect Walmart to report a third-quarter profit of $1.32 per share on $147.67 billion in revenue. If met, EPS will mark a 9% decline compared to the same quarter last year.
That isn’t too bad when added to the 1% Q2 decline.
In addition, sales would mark a modest improvement over the $140.5 billion posted last year.
Overall, annual EPS is expected to decline 9% in fiscal 2023 and rebound 12% in 2024, lifting back above the multiyear trendline.
Keep in mind these numbers are not adjusted for inflation, suggesting flat sales growth or a slight contraction when considering how much things cost in 2022, compared to last year.
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 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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