Walmart vs. Target: How WMT And TGT Stack Up After Recent Earnings Reports
Big retailers claw back, still searching for the “new normal.”
COVID-19 changed the way people shop, and businesses have been forced to respond. Two retail giants, Walmart and Target, led many efforts to meet buyers where they were, whether in their homes or curbside. However, these corporations were not immune to supply chain woes and inflation costs.
How have these two retailers managed to stake their claim on a new post-COVID market that still struggles to find its new normal? Here are some financial analyses regarding these two big (yet boxed) comebacks. Walmart’s Market Footprint
Walmart (WMT) comprises three business units: Sam’s Club, Walmart U.S., and Walmart International, making the company more sensitive to global financial trends than U.S.-only brands. In the 2022 fiscal year, it saw £572.8 billion in total revenue. Despite news reports of corporate layoffs and changes within the company, Walmart has continued to grow sales for the U.S. market, even throughout the pandemic, with 2019 sales at £331.7 billion and 2020 sales at £341 billion.
Notably, it has maintained a gross profit margin across all of its businesses at over 24%, even during those two leaner years. However, the second quarter of 2022 saw Walmart’s lowest gross profit rate in a while with 23.5% of revenue, hinting at a downturn that may be the start of a trend toward less overall profitability. Walmart is pushing hard to expand its digital footprint in the coming years.
Its W+ subscription service is poised to rival Amazon by offering free shipping, savings at the fuel pump, and partnerships with popular streaming services like Paramount Plus. Target’s Market Footprint Target doesn’t quite have Walmart’s international reach or digital influence.
Still, its focus on more social initiatives and its recent expansion of smaller urban shops may have helped fuel its continued growth during the difficulties of COVID. The retailer reported £106 billion in revenue in 2021, an increase of over £12 billion from 2020, and growth in 2021 measured at just over 13%. However, shoppers are holding onto their money in 2022, forcing Target to slash prices on merchandise that just won’t move.
As a result, it had an 87% reduction in operating income in the quarter ending in July, leading to weak comparable sales growth of 2.6%. To have to cut that much spending to stay profitable may seem concerning to investors. Difficulties in the Market
Despite Walmart and Target’s growth, here are a few forces causing these retailers to pivot quickly in this still uncertain time. High costs affect customers As both retailers worked to keep higher costs from affecting shelf prices during the pandemic, the actual cost of inflation is now seen across the U.S.
Walmart has acknowledged that rising fuel and food prices are affecting its lower-income customers, affecting how much product the retailer can move off shelves. With many of its customers relying on EBT and WIC programs to put food on the table, higher prices mean fewer items will make it into the cart each month. High inventories amid a supply chain crunch
Even as Facebook groups have popped up with the sole purpose of discussing empty shelves in some merchandise categories, there has been a glut of other goods for warehouses to contend with. People rushed to get their hands on swimming pools, bicycles, and tents to wait out the pandemic in 2020, but these items are clogging up storerooms as retailers struggle to sell them in 2022. The sharp changes in shopping trends aren’t something retailers can predict anymore, and it’s made worse by supply chain woes.
Target and Walmart continue to deal with a glut of off-season merchandise like pools, patio furniture, and grills that have just now hit store warehouses due to shipping delays and port dysfunction. Slowing sales in 2022 The pain at the pump is one reason people are holding onto their money a bit tighter this year.
This year provided no child tax credit checks mailed out to households, a driving factor in the big back-to-school and holiday spending last year. It’s not surprising that consumers keep a bit more in the bank as they attempt to navigate household budgets no longer set in stone. Social security checks will see a 5.9% increase in 2022 for inflation, which may help drive a few more sales from Walmart and Target’s lower-income older customers.
Still, past social security raises have seen this extra money go toward health care costs more often than other budget categories, so the raise may not help either retailer in the long run. Cyberattacks Finally, there’s another genuine concern to retailers, and it’s almost impossible to plan for or predict: cyberattacks.
While the late-2021 cream cheese shortage was related to a cyberattack on one of the largest dairy producers in the country, consumers didn’t care why they could not buy their favorite ingredients in time to prepare those essential holiday recipes. Retailers worked to get more products on the shelf, and cream cheese manufacturers even held special promotions to appease the disappointed public as they rewrote their menus. Moving forward, retailers may have little protection against this latest threat to the supply chain.
Connection to Broader Retail Trends Consumer shopping is down across the board, even for online sites like Amazon and Shopify. Amazon, however, is poised to recover from the 2022 downturn, with a stock split not stopping the projected momentum for this online powerhouse.
One interesting trend in retail is the rise of “brand agnostic” shopping, where consumers look for the best price, no matter who sells the item. This trend can benefit marketplace models like Amazon and Walmart’s third-party seller platforms while possibly hurting shopping malls and brand name retailers who might not be able to attract buyers through brand notoriety alone. Walmart and Target Outlook
So, should you invest in either Walmart or Target right now? Here’s what the experts have to say. Walmart is sitting on over £59.9 billion worth of goods, much of it out-of-season and not something people would even buy until next spring or summer.
It will, eventually, work out this supply chain blip, but investors must be able to see Walmart for the long-term investment it is and not something to jump into if you can’t weather the storm that is sure to come in early 2023. Target’s stock is down 24% this year, a sign that the retailer may not be able to handle the industry’s supply chain, inventory, and inflationary woes. Experts forecast the price will continue to decrease, giving those who want to jump in a chance to get it for less.
Whether it’s wise to buy with a price-to-sales ratio of 0.8 is another matter entirely. Target stock may not be the bargain you’re looking for. Maximize Your Investments
If the investment outlook for major retailers seems too risky, consider purchasing one of Q.ai’s diversified investment kits, designed to withstand risks inherent in the stock market. Each kit comes with five to 20 securities that match a particular investing theme, so you can choose a kit that fits your investing goals and your personal risk preferences. Download Q.ai today for access to AI-powered investment strategies.
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