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After Target (TGT) Earnings, Should Walmart (WMT) Investors Worry?
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Shares of Target (TGT - Free Report) are down about 5.7% Wednesday following the release of the company’s second-quarter earnings report. Target missed revenue expectations and slashed its guidance for the remainder of the year, which could be a sign of things to come for Walmart (WMT - Free Report) , another giant in the value shopping sphere that is set to report this week.
Target posted second-quarter earnings of $1.23 per share, which beat the Zacks Consensus Estimate of $1.14. However, quarterly revenues of $16.169 billion declined 7.2% on a year-over-year basis and fell short of our consensus estimate of $16.245. Additionally, comparable-store sales fell 1.1%, while total transactions were down 2.2% (also read: Three Reasons For Target's Weak Q2 Sales).
Target also lowered its outlook for fiscal 2016. The company now expects earnings to fall in the range of $4.80–$5.20 per share compared with its earlier-announced $5.20–$5.40 per share range. For the third quarter, the company expects earnings per share in the range of 75–95 cents. The current Zacks Consensus Estimate for the third quarter and fiscal 2016 stand at 98 cents and $5.16, respectively (also read: Target Q2 Earnings Beat, Sales Miss; Trims View).
Some of Target’s results have to concern Walmart investors, as the two companies tend to operate in the same retail sphere and attract similar customers. Walmart is set to release its earnings report on Thursday morning, and those looking to make an earnings play on the stock should definitely check out Target's report first.
To predict whether Target’s report foreshadows what’s to come for Walmart, we need to look at what caused Target’s sluggish sales. In the company’s conference call following the release of the report, CEO Brian Cornell highlighted several factors for the disappointing numbers, including a slow start to the company’s partnership with CVS (CVS - Free Report) and improperly focused marketing, which wouldn’t necessarily apply to Walmart.
However, Cornell did place a significant amount of blame on a decline in sales of Apple (AAPL - Free Report) products. According to Target’s management, a 20% drop in Apple sales was to blame for a third of the company’s double digit plunge in electronics sales. Of course, Walmart stores also stock Apple products in their electronics departments, and it will be interesting to see whether or not Walmart mentions Apple at all tomorrow.
Walmart investors might also be worried about Target’s guidance cut. Walmart currently has a Zacks Rank #2 (Buy) and a positive Earnings ESP, which suggests that an earnings beat is more likely, but that won’t matter if Walmart also posts lackluster guidance.
While Target’s guidance cut could be a result of company-specific trends, it could also be a statement on the overall health of the retail sector. Throughout this earnings season, retail results have been mixed, but Target could be indicating that less shoppers will be hitting the stores throughout the remainder of the year.
There’s a lot to consider heading into Walmart’s report tomorrow, and investors need to be fully prepared. For further analysis, check out our in-depth preview (Should You Buy Walmart Stock Ahead of Earnings?), or watch our own Dave Bartosiak walk you through the best options trading strategy ahead of Walmart’s report:
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After Target (TGT) Earnings, Should Walmart (WMT) Investors Worry?
Shares of Target (TGT - Free Report) are down about 5.7% Wednesday following the release of the company’s second-quarter earnings report. Target missed revenue expectations and slashed its guidance for the remainder of the year, which could be a sign of things to come for Walmart (WMT - Free Report) , another giant in the value shopping sphere that is set to report this week.
Target posted second-quarter earnings of $1.23 per share, which beat the Zacks Consensus Estimate of $1.14. However, quarterly revenues of $16.169 billion declined 7.2% on a year-over-year basis and fell short of our consensus estimate of $16.245. Additionally, comparable-store sales fell 1.1%, while total transactions were down 2.2% (also read: Three Reasons For Target's Weak Q2 Sales).
Target also lowered its outlook for fiscal 2016. The company now expects earnings to fall in the range of $4.80–$5.20 per share compared with its earlier-announced $5.20–$5.40 per share range. For the third quarter, the company expects earnings per share in the range of 75–95 cents. The current Zacks Consensus Estimate for the third quarter and fiscal 2016 stand at 98 cents and $5.16, respectively (also read: Target Q2 Earnings Beat, Sales Miss; Trims View).
Some of Target’s results have to concern Walmart investors, as the two companies tend to operate in the same retail sphere and attract similar customers. Walmart is set to release its earnings report on Thursday morning, and those looking to make an earnings play on the stock should definitely check out Target's report first.
To predict whether Target’s report foreshadows what’s to come for Walmart, we need to look at what caused Target’s sluggish sales. In the company’s conference call following the release of the report, CEO Brian Cornell highlighted several factors for the disappointing numbers, including a slow start to the company’s partnership with CVS (CVS - Free Report) and improperly focused marketing, which wouldn’t necessarily apply to Walmart.
However, Cornell did place a significant amount of blame on a decline in sales of Apple (AAPL - Free Report) products. According to Target’s management, a 20% drop in Apple sales was to blame for a third of the company’s double digit plunge in electronics sales. Of course, Walmart stores also stock Apple products in their electronics departments, and it will be interesting to see whether or not Walmart mentions Apple at all tomorrow.
Walmart investors might also be worried about Target’s guidance cut. Walmart currently has a Zacks Rank #2 (Buy) and a positive Earnings ESP, which suggests that an earnings beat is more likely, but that won’t matter if Walmart also posts lackluster guidance.
While Target’s guidance cut could be a result of company-specific trends, it could also be a statement on the overall health of the retail sector. Throughout this earnings season, retail results have been mixed, but Target could be indicating that less shoppers will be hitting the stores throughout the remainder of the year.
There’s a lot to consider heading into Walmart’s report tomorrow, and investors need to be fully prepared. For further analysis, check out our in-depth preview (Should You Buy Walmart Stock Ahead of Earnings?), or watch our own Dave Bartosiak walk you through the best options trading strategy ahead of Walmart’s report:
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>