Source: Wise Finance

$Target (TGT.US)$ As for macro data, the US Department of Commerce showed that the monthly rate of retail sales in the United States in July recorded an increase of 1%, the largest increase since January 2023. It was estimated to rise by 0.4% and the previous value was 0%. Compared with June, this was a strong rebound, and the sales data for June was revised to a decrease of 0.2%. Economists surveyed by The Wall Street Journal had expected sales to increase by 0.3%.$Walmart (WMT.US)$The financial reports of these two large US retailers once again highlight the performance gap between them. Target announced an underwhelming third-quarter performance report on Wednesday, causing its stock price to fall to a 52-week low. In contrast, Walmart's stock price surged to a historical high the day before. The reports show that Target's Q3 sales fell short of expectations and lowered its full-year adjusted earnings per share outlook. On the other hand, Walmart raised its full-year performance outlook, indicating a stronger sales trend.

Specifically, target's third-quarter sales were $25.23 billion, lower than the market expectation of $25.74 billion. The company stated that the poor performance was due to a "slowdown in discretionary demand" and rising costs, attributed to the hurried inventory shifting before the port strikes in October. In the earnings call, target's CEO Brian Cornell pointed out that american consumers are shopping cautiously, trying to cope with the cumulative effects of years of price increases. After the report was released, target's stock fell nearly 20% in pre-market trading.

On the other hand, walmart's performance was outstanding. The company raised its full-year performance forecast, increasing its net sales growth expectation from 3.75%-4.75% to 4.8%-5.1%, and raised its full-year adjusted operating profit growth forecast from 6.5%-8% to 8.5%-9.25%. Walmart stated that while consumers are placing more emphasis on cost performance, the spending demand of high-income consumers is increasing, and the sales trend beyond the grocery department is also improving.

Although the growth in foot traffic at both stores was similar, walmart's sales performance significantly outperformed that of target. Specifically, walmart's foot traffic in the usa grew by 3.1%, slightly higher than target's 2.4%. In terms of same-store sales, walmart achieved a year-on-year growth of 5.3%, while target's growth was only 0.3%. Additionally, walmart's e-commerce sales grew by 22% year-on-year, which also exceeded target's growth rate of 11%.

It is worth noting that other large retailers also reported better-than-expected performance this quarter. However, due to high interest and mortgage rates, consumers are holding back on large expenditures. The significant differences between these two large retailers indicate the willingness of consumers to spend and reduce expenditures in different areas. As retailers enter the most important selling season of the year, performance differentiation within the industry may become even more pronounced.

DA Davidson retail analyst Michael Baker pointed out that Target's disappointing performance reflects the company's performance rather than the health of consumers. He believes that Target's market share is declining, lagging behind Walmart, and other competitors.$Amazon (AMZN.US)$And.$Costco (COST.US)$In addition, Target's unstable performance over the past year also indicates problems with the company's execution. This fluctuation in performance has raised doubts about whether there are internal issues within the company.

Multiple investment bank analysts have downgraded the rating of target stocks, expressing concerns about the loss of customers and sales.

On Wednesday, several stock research analysts, including those from citigroup, deutsche bank, and hsbc global research, downgraded the rating on target due to concerns that the minneapolis-based retailer is losing customers and sales to competitors. Among them, citigroup retail analyst paul lehuiz pointed out that target's poor performance and weak outlook indicate that the company "is likely to lose to walmart" and may further lose market share due to insufficient promotional efforts.

Goldman sachs retail analyst kate mccahane believes one of the roots of target's troubles lies in its product mix. About 60% of target's sales come from non-essentials like housewares and outfits, while walmart, on the other hand, derives approximately 60% of its sales from everyday essentials. This product mix has led to volatility and instability in target's performance. Although both walmart and target mentioned the negative impacts of port strikes, target seems to attribute its quarterly performance weakness primarily to the strikes.

In addition, jpmorgan analyst matthew bos highlighted that although target has seen improvements in shrink and fulfillment costs, high inventory levels are putting pressure on margins. Stifel analyst mark astercan stated that disappointing performance and declining comparable sales year-over-year indicate that target's market share in key categories is decreasing, which may also affect its gross margin.

Royal bank of canada analyst steven shemesh noted that investors are concerned that if target's full-year revenue remains at low levels in 2025, the company will not have sufficient profit leverage to utilize. However, he also observed that the year-over-year profit margin for 2025 is expected to be flat to +1%, and the operating margin is also expected to be flat, which will result in approximately $9.50 eps.

However, citigroup analyst paul lehuiz stated that the poor outlook for the fourth quarter indicates that target's market share may be being taken by walmart, and believes that target may need to increase promotional efforts to drive customer traffic and sales, which will make the fiscal year 2025 even more uncertain.

At the same time, morgan stanley pointed out that its "retail funnel" data shows that large companies are accelerating their expansion, with amazon, walmart, and costco accounting for over 50% of retail growth and more than 75% of e-commerce growth, indicating that the remaining mall retailers and e-commerce companies are competing for the leftover share. Although target has outperformed many retail chains in sales growth, its stock price performance over the past year has failed to keep up with these three giants.

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

However, during the conference call with investors on Wednesday, Cornell pointed out that despite disappointing sales performance, there are signs of a "recovery" in the business, such as increased customer traffic, growth in online sales, and relatively strong sales of outfits.

Nevertheless, several analysts questioned Target's future plans during the meeting, asking if the company needs to make changes or increase business investment. Cornell responded that the company will stick to its existing global strategy, including offering unique commodities and national brands, opening new stores, expanding its advertising business, and providing shoppers with more online shopping options. He emphasized that Target will continue to keep pace with consumers, ensuring to meet the expectations of consumers across the USA.

Editor / jayden