Yahoo Finance

A tale of two retailers, when looking at Walmart and Target, Target shares sinking after cutting its forecast and warning on the impact of tariffs. Meanwhile, its rival Walmart maintained its full year outlook and expects sales to grow between three and four percent here with more on how Walmart pulled ahead of Target is Yahoo Finance senior reporter Brooke DePalma here. Brooke, what have you assessed?

Yeah, good morning to you both. This is certainly a tale of two very different retailers. We know that Target really struggled to find its footing, especially as it faced that backlash from the pullback of diversity, equity, inclusion initiatives. Meanwhile, Walmart continues to attract customers with their key grocery category. Look break down in three parts, same source sales growth, their guidance, and then also that product mix. Taking a closer look at same source sales growth. What we heard from Target is that they reversed that same source sales momentum that they saw with a decline of 3.8%, far different than what Walmart US store with saw with an increase in same store sales growth. And as you can see here, this is really a trend that we've been seeing over the past say two and a half years since inflation peaked in the second half of 2022 as consumers really focused on wanting low prices and value for their money. Now, what this has led to today is this guidance outlook that Target has set. Essentially cutting their outlook for 2025, they now expect a low single digit decline in sales, that's down from 1% in the previous quarter they had said, while Walmart, they reiterated albeit conservative guidance. They now project sales to increase between 3% to 4%. Why is this all happening? Walmart's product mix is winning. We know that for a fact, one analyst telling me that Walmart is better positioned for traffic consistency. What's bringing in traffic? Groceries. Walmart's business is made up of 60% groceries. They also have about 10% coming from health and wellness and that remaining 30% is general merchandise. It's a far different story than what Target's offering here. We know that just 20% of what Target's offering is food followed by 10% beauty, 15% essentials, 15% apparel, 20% home, and 20% hard goods. Like think toys, think baby strollers. And essentially those are the items that in this sort of environment consumers are saying we could do without.

Well, Brooke, it makes me wonder too a little bit more about the pricing pressure of these companies. If product mix is such a concern, who can maybe win on price? What are we hearing from both Target and Walmart in terms of the tariff impact on their pricing power?

Yeah, just Thursday, Walmart came out their earnings and they made this big splash saying that they are going to have to raise prices because of tariffs. Of course that was met with backlash over the weekend from President Trump and now Target, not so quick to say that they're going to raise prices. In fact, they were very, you know, they declined to say whether or exactly they will have to raise prices. They did say that pricing is a very dynamic part of their business, that they're going to constantly have to adjust. They also said that they're looking to mitigate price changes by bringing or rather sourcing more products from the US instead of China. But what we remember is that this time last year, Target made that huge splash that they were rolling back prices. We saw that reverse and seems source sales growth in the middle of the year. And now at the end of last year, they said that 10,000 goods they were able to lower prices on. Because of these tariffs, the reality is, it's going to hit retailers margins if they don't in fact use mitigation strategies, one of them being higher prices.

Yeah, and that's certainly something that we heard from Bill Kirk as well. Brooke, thank you so much for bringing us your reporting. Really appreciate you breaking down the differences and similarities between those retailers.