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After last week, 71% of S&P 500 retailers had beaten Zacks EPS estimates. Investors are hoping that Target TGT and Walmart’s WMT earnings reports on November 16 and 15, respectively provide another boost to that figure and top estimates.
Individually their Q3 reports will help investors gain a clearer picture of which stock may be better for their portfolio going forward. Let’s see what’s going on with Target and Walmart stock before they report.
Inventory Issues
Both companies have dealt with inflation-related issues throughout the year. TGT stock had a drastic drop after Q1 earnings as excess inventory led to the company selling products at steep discounts. Profits dropped as consumer spending was already slower due to rising inflation. This was compounded by Q2 earnings also missing expectations.
Target’s Q1 miss reinforced a Walmart selloff after they also reported disappointing first quarter results the day before TGT’s release. WMT was able to recover and beat Q2 expectations. However, after seeing higher than usual inventory of their own last quarter, Walmart stated this is something the company will be working on in 2023 as well.
In September Walmart CEO Doug McMillon said supply chain problems and now inventory shortages are the most rigid in 30 years. Target surprisingly stated it was past its inventory issues last quarter but this will be something investors will want to monitor for both companies going forward.
Recent Performance
Over the last year, Walmart shares have acted somewhat defensive and have recouped most of the losses following the drop after Q1 earnings. Target’s Q1 fall was so steep that TGT is still down -34% over the last year vs. WMT’s -6% and the benchmark’s -16%.
Image Source: Zacks Investment Research
However, over the last month leading into Q3 earnings, TGT stock has gained momentum up +16% to outperform WMT and the benchmark shown in the cart below. TGT is still down -25% YTD, underperforming WMT’s -4% and the benchmark’s -17%.
Image Source: Zacks Investment Research
Growth & Outlook
The Zacks Consensus Estimate for TGT’s Q3 earnings is $2.14 per share, which would be a decline of -29% from the year prior quarter. Sales for Q3 are expected to be up 3% at $26.36 billion. This is an indication that operating costs are weighing on Target’s profits although the company says inventory issues are behind it.
For TGT’s current fiscal year, earnings are forecasted to drop -40% at $8.09 per share, with revenue up 3% to $109.79 billion.
Image Source: Zacks Investment Research
Turning to WMT, the Zacks Consensus Estimate for Q3 earnings is $1.31 per share, which would be a decline of -9% from Q3 2021. Sales for Q3 are expected to be up 5% at $147.40 billion. This may be a slight indication that operating costs are weighing down the company’s bottom line in a tougher overall economic environment.