Both Walmart (WMT) and Target (TGT) delivered fantastic second-quarter reports this week, and Barron’s had noted for the reports that Target was likely to receive a major boost from its results. That’s the way it’s been played, with Target stock jumping 12% on Wednesday afternoon, while Walmart reported losses after its report on Tuesday.
Analyst at Cowen & Co. Oliver Chen, who last week called out Target’s potential to break out, wrote that the company’s ‘tremendous’ growth and agile performance [drove] unprecedented upside ”in the quarter He said he was optimistic about the company’s ability to attract and retain new customers, while successfully mixing stores and digital inventory and delivery delivery. ”
The main difference between Target and Walmart’s quarters was the pace of recent sales. Sales of the same store at Walmart in July were up just 4%, less than half the total in the second quarter, and the company warned that declining stimulus checks were weighing on spending. In contrast, Target sounds optimistic about its ability to continue with large revenue gains.
This divergence is supported by foot traffic data, as followed by Placer.ai, a data and analytics company. While both Walmart and Target saw large declines in April in the same store sales, during the thick of lockdown measures and after panic buying in March, Target returned faster. Target attendance went from 32.1% year-over-year to April to just 2.1% in May, and remained at about that level in June and July. While Walmart, however, returned after a 7.8% year-over-year drop in traffic in May from a 19.7% drop in April, it was up again double-digit record in both June and July.
Revenue and traffic were not the only areas where Doel shone. The company added 10 million digital customers in the first half of the year, a period when it also raised $ 5 billion in market share. The same store’s total sales and e-commerce growth were higher than Walmart’s, although this is from a smaller base.
Of course, the Street always has one eye for the future, which makes some investors wonder how long the good times for Target can continue. Sure, the stock may return some of the double-digit pop on Wednesday, and there may be concerns that this may just raise the bar for future quarters.
No one expects Target, like any other essential retailer, to keep abreast of the breakthrough pace it has experienced this year. From panic buying to stimulus checks, there was no shortage of extraordinary catalysts that sell sales, and those will eventually tap into it. The question is whether these companies can retain the customers they gained during the Covid-19 crisis, which will soften the arrival and position them for growth.
Judging by this metric, there is reason to be Bullish on Target, even after Wednesday’s rally. Without a vaccine or effective treatment in the long run, there is little reason to believe that recent consumer habits will change, and these have benefited the largest retailers to a large extent. With a few exceptions, consumers have consolidated their minds, which means one-stop shops like Target are taking stock from smaller rivals.
In addition, a 700% increase in drive-up orders shows that Target’s omnichannel approach resonates with consumers. Even as more online shopping has moved, a large network of physical stores remains a major asset, one advantage that Target has over Amazon.com (AMZN).
“With Target’s market cap at $ 77 billion and Amazon’s market cap at $ 1.6 trillion, Target trades at one-time sales and Amazon at five times sales,” notes Centerstone Investors founder Abhay Deshpande. “There are too many people on the other side of the boat.”
Likewise, Gordon Haskett analyst Chuck Grom thinks the ‘sample’ results show that the gap between Target and Walmart’s multiples is also not fair and he sees it narrowing in the coming months. “This development, along with the high chance that Street rumors need to be sensibly driven [Target] well above recent height. ”
That said, there is room for more than one winner, and that also points well for Walmart. Even if it sees a decline in sales as stimulus sets in, it still delivers a big quarter and benefits from many of the same factors that help Target.
The downbeat tone of management may have helped to lower expectations a bit, and of course if more government controls go out, if improved unemployment benefits return, that would help the topline.
In fact, it could win both ways. The continued slowdown in new incentives, as a minor incentive this time around, could help Walmart reset consumers’ priorities on value, noted Jefferies analyst Christopher Mandeville. “As such, we remain confident that Walmart’s share can grow in the long term. Reduced store hours and out-of-stock also deduct from sales, both of which return to normalized levels. “
Even Cowen’s Chen, who marked Target’s better position in the win, is Bullish on both shares. “In the short term, we believe Walmart is well positioned to compete in an uncertain consumer environment, while in the longer term, we expect Walmart to grow its market share across the groceries and other categories.”
Target ended Wednesday with 13% to $ 155.28, while Walmart was 1.7% off at $ 132.41. The Dow Jones Industrial Average closed 0.3%. Walmart was down 0.4% in premium trading on Thursday, while Target was up 0.6%.
Write to Teresa Rivas at [email protected]
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