The Zhitong Finance App learned that the financial reports of the two major US retailers, Target (TGT.US) and Walmart (WMT.US), once again highlighted the difference in performance between them. Target released its third-quarter results report that fell short of expectations on Wednesday, causing its stock price to fall to a 52-week low. The day before, Walmart's stock price soared to an all-time high. Financial reports showed that Target's Q3 sales fell short of expectations and lowered its full-year adjusted earnings per share forecast. In contrast, Walmart raised its full-year performance forecast, showing a stronger sales trend.

Specifically, Target's third-quarter sales were $25.23 billion, lower than market expectations of $25.74 billion. The company said the reasons for the poor performance include “decelerating discretionary demand” and rising costs, which were blamed on the impact of hasty inventory transfers before the October port strike. In the earnings call, Target CEO Brian Connell stated that American consumers are shopping carefully and trying to overcome the cumulative impact of years of price increases. After the earnings report was announced, Target's US stock fell close to 20% in the premarket.

Walmart, on the other hand, performed well. The company Walmart raised its full-year performance forecast, raising the annual net sales growth forecast from 3.75%-4.75% to 4.8%-5.1%, and the adjusted operating profit growth forecast for the whole year from 6.5%-8% to 8.5%-9.25%. Walmart said that although consumers value cost performance more, consumer demand from high-income consumers is growing, and sales trends for products outside the grocery sector are getting better and better.

Although the two stores saw a similar increase in customer traffic, Walmart's sales performance was clearly superior to Target's. Specifically, Walmart's passenger traffic in the US grew by 3.1%, slightly higher than Target's 2.4%. In terms of same-store sales, Walmart achieved a 5.3% year-on-year increase compared to Target's growth of only 0.3%. Additionally, Walmart's e-commerce sales increased 22% year over year, which also surpassed Target's 11% growth rate.

Notably, other major retailers also reported better-than-expected results this fiscal quarter. However, due to higher interest rates and mortgage interest rates, consumers are on the sidelines with large expenses. The huge differences between these two major retailers indicate consumer spending intentions and reduced spending in different sectors. As retailers enter the most important sales season of the year, performance differentiation within the industry is likely to become more pronounced.

DA Davidson retail analyst Michael Beck pointed out that Target's disappointing results reflect the company's performance rather than the health of consumers. He believes Target's market share is declining, falling behind competitors such as Walmart, Amazon, and Costco. Furthermore, Target's unstable performance over the past year also indicates a problem with the company's execution. This fluctuation in performance raised doubts about whether there was a problem within the company.

A number of investment bank analysts downgraded Target's stock, worried about loss of customers and sales

On Wednesday, a number of equity research analysts, including Citigroup Research, Deutsche Bank, and HSBC Global Research, downgraded Target's stock ratings due to concerns that the Minneapolis-based retailer's customers and sales were taken away by rivals. Among them, Citibank retail analyst Paul Lejuz pointed out that Target's poor performance and weak outlook suggest that the company “is likely to lose to Walmart” and may further lose market share due to lack of sufficient promotion.

Goldman Sachs retail analyst Kate McShane believes that one of the causes of Target's difficulties lies in its product portfolio. Target generates about 60% of sales from non-essential items such as household items and clothing, while Walmart, in contrast, accounts for about 60% of sales from everyday necessities. This combination of products has contributed to the volatility and instability of Target's performance. Although both Walmart and Target mentioned the negative effects of the port strike, Target seems to blame the strike for the main reason for its weak quarterly results.

Additionally, J.P. Morgan analyst Matthew Boss emphasized that although Target's contraction rate and fulfillment costs have improved, high inventory levels are putting pressure on profit margins. Meanwhile, Stifel analyst Mark Astrakhan said the performance was disappointing, and comparable sales declined year by year, indicating that Target's market share in key categories is declining, which may also affect gross profit margins.

Royal Bank of Canada analyst Steven Shemesh pointed out that investors are worried that if revenue remains low for the full year of 2025, Target will not have enough profit leverage to utilize. However, he also observed that the year-on-year profit ratio in 2025 will remain flat to +1%, and the operating margin will remain flat, which will generate earnings of approximately $9.50 per share.

However, Citibank analyst Paul Lejuez said that the poor outlook for the fourth quarter indicates that Target's market share may be being taken over by Walmart, and believes Target may need to increase promotional efforts to drive traffic and sales, which will make fiscal year 2025 more uncertain.

Meanwhile, Morgan Stanley pointed out that its “retail funnel” data shows that large companies are expanding at an accelerated pace. Amazon, Walmart, and Costco account for 50% of retail growth and more than 75% of e-commerce growth, which means that the remaining mall retailers and e-commerce companies are competing for the remaining portion. Although Target outperformed many retail chains in terms of sales growth, the company's stock price performance over the past year failed to keep up with the Big Three.

Target is also facing other issues, including uncertainty about future leadership. Current CEO Cornell has held this position since 2014 and agreed to continue leading the company for three more years in September 2022.

However, during a conference call with investors on Wednesday, Cornell pointed out that despite disappointing sales results, the business was showing “signs of recovery,” such as increased customer traffic, increased online sales, and relatively strong apparel sales.

Despite this, several analysts raised questions about Target's future plans at the conference, asking if the company needed to make changes or invest more in the business. Cornell responded that the company will stick to its current business strategy, which includes providing unique products and national brands, opening new stores, expanding advertising business, and providing shoppers with more ways to shop online. He stressed that Target will continue to keep up with consumers to ensure that the expectations of consumers across the US are met.