Walmart and Target’s quarterly results lay bare retailers’
Walmart‘s stock surged this week. Target‘s shares plunged.
The rival big-box players are both known for selling an array of products including food, clothing, home goods and kitchen appliances. Both their CEOs − Walmart’s Doug McMillon and Target’s Brian Cornell − stepped into their roles in 2014.
But the retailers issued starkly divergent outlooks this week that underscored their differences – most notably in how much each relies on grocery sales.
On Tuesday, Walmart raised its financial outlook for the year after U.S. same-store sales in the third quarter rose 8.2% from a year ago when excluding fuel. A day later, Target slashed its forecast for the holiday quarter after comparable sales rose just 2.7%, with executives noting weakening trends heading into the season.
Here’s a rundown of four key factors that help explain the split in earnings results:
Grocery routine vs. Occasional stop
Walmart gets a far bigger share of its sales from groceries than Target, which is helping it draw shoppers looking to save money as inflation squeezes budgets.
Groceries account for 56% of Walmart’s annual revenue, compared with about 20% at Target, according to company filings. Walmart is the country’s largest grocer by revenue.
Target also sells groceries, but it doesn’t have the same breadth of offerings. For example, stores sell eggs, milk, fruits and vegetables, but do not have full-service bakeries, meat and seafood counters or delis where shoppers can get freshly sliced turkey and cheese.
More customers turn to Walmart to fill out the bulk of their grocery lists, said Neil Saunders, managing director of retail advisory firm GlobalData.
By contrast, shoppers tend to go to Target more for “top-up shopping” — grabbing a few food items when making a run for another reason, such as picking up diapers.
Even as shoppers decide not to buy a TV or new outfit, they have had to keep replenishing the food in their fridges — a factor that is keeping Walmart’s sales steadier.
A man pushes his shopping cart past bread for sale at a Walmart SuperCenter store in Rosemead, California.
Frederic J. Brown | AFP | Getty Images
Low prices vs. Fun finds
Walmart is known for its mantra of “everyday low prices” and its focus on value has become synonymous with its name. Founder Sam Walton built the company on a no-frills approach aimed at making groceries and other products more affordable.
As Americans increasingly watch their budgets, the big-box retailer’s reputation as a discounter is giving it an edge. And the company has flexed its ability to use its size and scale to keep prices low.
Walmart’s McMillon speaks often about the company being a price leader — and more recently, an inflation fighter. For Thanksgiving, the company said it would hold down the price of foods like turkey and ready-to-heat macaroni and cheese to last year’s levels.
The low prices are attracting new customers, including more higher-income households.
For the past two quarters, the company said about 75%…
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