As the retail bloodbath continues to rage on one dismal earnings report at a time, two interesting narratives I've been looking over this past week are Target and Walmart.
Make no mistake, alongside pretty much every other retailer out there, these two have faced intense pressure lately. Rival giant Amazon's quest for world domination doesn't appear to be slowing anytime soon, making the overall landscape even more challenging. But this week, Target and Walmart reported earnings, making it timely to stack these big box retailers up against one another.
By my account, both companies still appear to be killing it given the tough backdrop. On Wednesday, Target reported upbeat first-quarter earnings. For the one-year period, Target is down over 13%. On the call, CEO Brian Cornell shared tidbits about Target's upcoming plans, including a concentration on the 21st Century shopper by putting more efforts into its overall online services.
On Thursday, Walmart weighed in with better-than-expected first-quarter results, but shares are down over 7% for the one-year period. CEO Doug McMillon told investors that customers have responded positively to its initiatives, including Walmart Pay, which allows customers to pay using its smartphone app.
So far, so good (sorta), but what do the analysts think? As it turns out, a key theme I note first and foremost is that these retailers keep on truckin and they continue to offer bright spots for the investor. The bigger question, then, is: as an investor, which one are you more comfortable with putting in your cart?
Cowen & Company's Oliver Chen and team updated sentiment on both companies following earnings. The team noted Target's first-quarter worldwide E-commerce growth of 23% year-over-year was significantly higher than Walmart's, at 7%. In the case of Outperform-rated Target, the team cut the price target to $81 from $88. For Market Perform-rated Walmart, the team raised the price target to $70 from $64. The team writes:
"Walmart is seeing strong response to its grocery pickup initiative (now in 40 markets), the Walmart app, and Walmart Pay, but they are not material to drive higher growth. For now, Walmart is continuing to expand on its flexible fulfillment capabilities, building its assortment online (including 3rd party items), and ensuring a seamless experience for customers in store + online."
Chen's team noted that one of Target's struggles over the quarter came in the form of lost "fill-in" shopping trips, which have possibly been poached by Amazon. In addition, the team writes,
"Target continues to out-execute retail peers, however Target is not immune to cold weather in April-May, weak consumer electronics (down 70 basis points first-quarter comp), and the promo environment."
When Neil Saunders of Conlumino weighed in, interestingly enough, he lambasted Target for essentially "hiding its light under a bushel," when it comes to displaying its finest wares. However, the recent hiring of Nordstrom alum Mark Tritton as Chief Merchandising Officer has Saunders feeling more at ease. Saunders writes:
"Overall, we believe that Target is one of the old gang of traditional retailers that has managed to swim against the tide to make itself compelling and relevant in a new era of retail. That it is winning, and that it also has many more areas of potential gain, stand it in good stead in the years ahead."
Saunders had plenty to say about Walmart as well. Notably, on the domestic front, Saunders believes Walmart has the "firepower and the will" to make the changes it needs.
One final thought that caught my eye about these two came from an article on Seeking Alpha by Colorado Wealth Management Fund, which argues that the current dip in Target's share price is the buying opportunity interested investors need right now:
"As a shareholder of Wal-Mart, clearly I would prefer to see Target spend its cash on repurchasing shares rather than spend it on aggressively expanding to engage in more battles with Wal-Mart. However, I'm also considering a position in Target. Up until recently, Target was simply too expensive for me to buy into, but the latest sell-off is making shares look dramatically more attractive."
One final semi-related player that I'm also watching carefully is TJX. Talk about killing it!
