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TGT vs. WMT: Which Big Box Retail Stock Had Better Earnings?

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Target (TGT - Free Report) released its latest earnings report this morning, and with rival Walmart (WMT - Free Report) reporting last week, investors now have a complete update on the big box retail behemoths. Both companies had mixed results, so now it is time to dig into each report to find the key takeaways and prepare for what is next.

Walmart

Walmart posted a double beat for Q1, with earnings of $1.14 per share and revenue of $122.7 billion. Despite outperforming expectations, the stock is down 4.8% since the report release. This is most likely a result of lowered guidance by the company due to the company investing in Flipkart, an Indian electronic commerce company.

The company reported especially strong international performance. Net sales for Walmex (consolidated results of Mexico and Central America) increased 9.1%, Canada gained 2.6%, China moved 4% higher, and the United Kingdom added 3.4%.

Walmart has been expanding its ecommerce business as well, competing with companies such as Kroger (KR - Free Report) and Whole Foods, but slightly cutting into profitability. Net income dropped $0.28 per share due to ecommerce and website investments, discounts, and transportation costs. But the investment seems to be paying off, with a 33% increase in e-commerce business growth.

It is also worth noting that some of the shortcomings in Walmart’s report were caused by unseasonable weather.

“We did have some headwinds we faced at the end of the quarter in April with some seasonally cool weather that impacted some of our general merchandise weather sensitive categories as well as some traffic in those categories,” said Kary Brunner, director of investor relations for Walmart, in the company’s earnings call.

Target

Target posted an earnings miss and revenue beat for Q1, reporting adjusted earnings of $1.32 per share and revenue of $16.8 billion. The earnings miss has driven share prices down 5.5% during regular trading hours today.

The company reported a strong ecommerce transition as well, with online sales increasing 28% year over year. Although this is the case, it too is losing profitability at the cost of advancing its online business, with gross margins decreasing slightly year over year. Along with this, if the company hopes to produce a truly strong ecommerce platform, it will have to produce more than the current 5% of overall revenue that its digital sales are accounting for.

On the upside, the company saw a strong 3% increase in comparable store sales. Running behind this, the company has stayed true to its previous full-year earnings outlook.

Target’s purchase of Shipt, a same-day delivery company, shows its own delve into delivery, competing with the likes of Walmart, Whole Foods, and Kroger. Although profitability has been challenged, the company is confident that the uptick in consumer traffic in stores is a result of their efforts across the board.

“We’re growing market share in a strong consumer environment across all major categories” said CEO Brian Cornell.

Bottom Line

Walmart and Target are two big box retailers pushing in the same direction. With both companies aggressively investing in their own brands, increase market share, and expand ecommerce, earnings and guidance likely took a dent. Walmart’s investments caused a substantial hit to its full year outlook, while Target’s investment decisions negatively impacted its Q1 EPS results.

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