Target and Walmart have historically served as bellwethers for the retail landscape as a whole, often having similar successes and challenges. For Q3, the two retail giants saw similar consumer patterns, but with different impacts on performance and earnings.

Key takeaways:

– Walmart posted 8.2% comparable sales and increased the guidance for the year while Target comparable sales only increased 2.7% and they reduced forecasts for the year
– Higher income consumers are trading down to accommodate inflation driven price increase, benefiting Walmart and hurting Target
– Both retailers had higher inventories than normal, but neither is overly concerned due to planned growth and inflation effects.
– Increased sales in Grocery and decreased sales in discretionary categories disproportionately benefited Walmart and hurt Target. Grocery accounts for 56% of Walmart’s business vs. only 20% for target.

Walmart’s quarterly results exceeded expectations, resulting in an updated yearly guidance to reflect the successful Q3. The primary drivers of this 8.2% increase in comparable stores was the growth in market share, likely due to inflationary pressures. Looking deeper in to the market share gain, ¾ came from households making over $100K. Walmart feels good about their inventory position heading into peak holiday. Inventory is up 13% year over year, however, about 70% of that increase is driven by inflation and not units. With the supply chain delays easing, more units are moving into stores versus being stuck in the supply chain. Essentials continued to sell through, but categories such as electronics and home apparel struggled.

In contrast, Target did not have a great quarter, lowering its guidance for Q4 and the total year. Comparable store sales increased by 2.7% and exceeded forecasts but operating margin and earnings did not meet expectations. Inventory ownership is up 14% to LY, which is a significant improvement from where they ended Q2 at +36% to LY. Target attributed ⅔ of the increase to planned growth and they are not concerned. Beauty, Food and Beverage and Household Essentials had good performance this quarter, but discretionary categories such as apparel and hard goods continued to lag.