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Walmart vs. Target: Who Performed Better During Q1 Earnings?

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Q1 earnings season is almost over, and earnings growth reached some of the highest levels investors have seen in five years. One sector, however, continues to disappoint: Retail. But this shouldn’t come as a surprise. The same problems that affected the sector a year ago are still causing growing pains, as retailers continue to grapple with the rise of e-commerce, declining sales, and changing consumer preferences.

This season, department stores took a nasty beating. After Macy’s (M - Free Report) , Kohl’s (KSS - Free Report) , and Dillard’s (DDS - Free Report) reported disappointing earnings, investors panicked, and almost every major apparel retailer suffered as a result. The same domino effect occurred when Dick’s Sporting Goods (DKS - Free Report) reported its earnings; sporting goods peers and sports retailers alike weren’t able to escape negative investor sentiment.  

There were some bright spots in Retail’s earnings. Home Depot (HD - Free Report) crushed analyst expectations once again, retaining a four-year long trend of beating earnings estimates. Beauty giant Ulta (ULTA - Free Report) hasn’t reported its results yet, but the #2 (Buy)-ranked company has consistently beaten estimates in the past four quarters.

Big-box favorites Walmart (WMT - Free Report) and Target (TGT - Free Report) had surprisingly good quarters as well, with shares of both companies rising as a result. Who performed better in Q1? And who is better-positioned in the long-term? Let’s break down Walmart’s and Target’s results to find out.

Walmart

Still America’s largest brick-and-mortar retailer, Walmart reported better-than-expected earnings of $1.00 per share, beating the Zacks Consensus Estimate of 96 cents. Total revenues came in at $117.5 billion, falling just short of our consensus estimate but increasing 1.4% year-over-year.

U.S. same-store sales rose 1.4%, beating analyst estimates and marking the 11th-consecutive period of positive sales in the Walmart’s home market; comp traffic improved 1.5%, though average ticket declined 0.1% in Q1. The impact of rising consumer spending was seen in improved traffic during the quarter.

Operating income declined 0.7% to $5.24 billion, though this was due to Walmart’s continued investments in e-commerce initiatives as it takes on Amazon.com (AMZN - Free Report) . Speaking of online, Walmart noted that its e-commerce business saw gross merchandise volume soar 69%, a sign that last year’s $3.3 billion acquisition of Jet.com may finally be paying off. Walmart now boasts 50 million items on its website, up from 35 million in the last quarter.

Target

While not the country’s biggest retailer, Target may be one of Americans’ most preferred. The company reported adjusted earnings of $1.21 per share, comfortably surpassing the Zacks Consensus Estimate of 89 cents. Net revenues came in at $16.02 billion, also beating our consensus estimate but decreasing 1.1% year-over-year.

Net income rose to $681 million, while Target said that its same-store sales fell 1.3%, a much narrower decline than the 3.7% analysts were forecasting. The company attributes this to a decline in customer visits and shoppers picking up fewer items on average; sales in its struggling food and beverage business were also down.

Target continues to expand its online presence, and Q1 was no exception: comparable digital channel sales grew 22% and contributed 0.8 percentage points to overall same-store sales growth. Target is trying to replicate the kind of shopping experience customers know and love in its stores on its website. We all know these memes about walking into a Target and when getting to the check out, not knowing how you just spent so much money. Target’s management is looking to mimic that kind of “impulse purchasing power” in its online store.

Who did it better?

While Target beat analyst expectations across the board, giving investors renewed hope that its turnaround efforts might be starting to take effect, the company’s CEO, Brad Cornell, knows Target can perform better. "We're not doing any high-fives in the room here today," he told analysts and investors on the company’s earnings call. "Our first-quarter performance is not what we expect to deliver over time."

But Target is taking big steps to improve short- and long-term growth. The company is planning on rolling out 12 original brands over the next two years in hopes of getting more customers back in its stores; the first, called Cloud Island, will debut later in May and features home décor, bedding, and bath items.

Target also plans on expanding its smaller-format stores that populate larger metropolitan areas. Target COO John Mulligan said that for the company’s 10 most “mature small-format stores, we are seeing double-digit comp increases on average so far this year."

The clear winner in this particular match-up, however, is Walmart. Most strikingly, of course, is the retailer’s insane online growth. Not only is it giving Amazon a run for its money through its website sales, but Walmart has also been boosting its online acquisition portfolio, scooping up Moosejaw, Modcloth, Shoebuy, and potentially Bonobos, in addition to Jet.com.

At the same time, Walmart is taking steps to improve its many brick-and-mortar stores, implementing cleaner aisles and faster checkouts, for example. The company is also doubling down on pricing in its grocery division, making sure its prices are best in comparison to rivals like Kroger and Aldi.

Both giants have plans to expand their store count this year, and each of these companies’ earnings report is a sign that the Retail sector has some life left in it. Walmart, especially, is impressive, and while its online expansion hasn’t come cheap—its expenses grew faster that its sales in Q1—the retail giant is a consistently great example of a company taking on Amazon…and winning?

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