When it comes to discount retailers, there are usually two investment camps. One prefers the style and low prices offered by Target (TGT), and the other investment strategy will trade a little less style for the better prices offered by retail giant Walmart (WMT). This week we saw just how well each retail stock fared in terms of their most-recent earnings (Get more detail on Target earnings and Walmart earnings)
While both retail stocks reported solid year-over-year profit increases, there’s clearly one company on target, and one that’s hit the wall (puns intended).
Target Earnings and TGT Stock
A look inside Target’s fiscal first-quarter earnings report reveals a hefty 29% increase in net income, with that figure coming in at very robust $671 million, or 90 cents per share, for the period ended May 1. TGT stock earnings were well above the $522 million or 69 cents per share the retailer earned in the first quarter of 2009. The Street was expecting earnings of just 86 cents a share. Target sales revenue in the quarter also impressed, coming in at $15.59 billion, a 5% year-over-year increase.
The “cheap chic” discount retailer saw gains in its credit-card business, and in the all-important same-store sales metric. Sales at stores open at least a year jumped 2.8%. Looking forward, Target also said it was, well, on target. The company expects to post a same-store sales increase of anywhere from 2% to 4% percent in the current quarter. The company also reaffirmed its second-quarter and full-year profit forecasts, saying the 91 cents per share and $3.81 per share outlooks are “reasonable.”
Walmart Earnings and WMT Stock
It was a different tale for Walmart. The world’s largest retailer did post a year-over-year earnings increase in net income of $3.32 billion, or 88 cents per share, for the period ended April 30. WMT stock did much better than the $3.02 billion, or 77 cents per share, in the same quarter a year ago. Walmart sales revenue also grew, coming in at $99.85 billion, or a 6% year-over-year increase.
In contrast to Target, however, were the Walmart same-store sales. That measure was down 1.1%, and the slide was much worse than the 0.6% decline retail analysts were anticipating. Going forward, WMT stock said it expects U.S. same-store sales to come in between a decline of 2% and a gain of 1%. Walmart also gave a tepid second-quarter forecast, saying earnings per share would be between 93 cents and 98 cents. That’s on the low end of the 98 cents per share consensus estimate.
Which Stock is Better – Target TGT or Walmart WMT?
If we go by purely by their respective Q1 performances, Target is the clear victor. The company is likely benefitting from improving economic conditions in the U.S., and its also likely poaching some Walmart customers who turned to the deeper-discount retailer during the height of the recession. Now that things are improving, Target is gaining customers while Walmart struggles to maintain its massive customer base.
And what about the share price performance? Well, here the clear winner also is Target. Year-to-date, TGT shares are up 12%. Over the past 12 months, the stock has climbed 29.8%. That performance far outpaces Walmart’s year-to-date fractional gains of just 0.48%. It also trumps the stock’s 12-month performance of a mere 7.6% gain. When it comes to which stock has delivered of late, Target takes the checkered flag again.
The one potential driver going forward for Walmart is its massive size, and its status as the safe-haven retailer of choice when the economy really turns south. If we were to see an end to the current improvements in the economy, or if the U.S. starts suffering from a wider global economic slowdown, shoppers could easily return to Walmart. But until that happens, I’m staying on Target.
As of this writing, Jim Woods did not own a position in any of the stocks mentioned here.
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