Walmart vs. Target: Why Discounts Drastically Affected Profits in Opposite Directions

couple shopping in Walmart grocery store

Inflation-weary consumers tired of paying high prices have been scouting deep discounts this year, prompting retailers like Walmart and Target to slash prices on items to help move excess inventory off the shelves. But while the operating environment is similar for both retailers, the financial impact has been much different.

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On Tuesday, Walmart posted a 23% year-over-year gain in earnings per share for its fiscal second quarter, topping analyst expectations. It also logged a 6.5% increase in same-store sales at its U.S. stores, which also beat views. The retail giant did warn that its full-year EPS would decline 9% to 11%, Reuters reported, though that is a slight improvement from its previous guidance of an 11% to 14% dip.

In contrast, Target took a major beating during the second quarter, reporting a 90% decline in second-quarter profit on Tuesday that fell well short of analyst estimates, CNN Business reported. It was the second straight quarter of plunging profits for Target, with the Q2 decline much steeper than the 40% drop in Q1 earnings.

At first glance, the wide gap in financial results for Walmart and Target seems odd considering that both companies have been forced to slash prices on much of their merchandise to draw foot traffic and reduce inventory.

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As Reuters noted, Walmart said it cut prices on clothing and other goods to help clear inventory valued at more than $61 billion at the end of the first quarter. The retailer reported inventories of $59.92 billion at the end of the second quarter, which was 25% higher than a year earlier.

In a statement, Walmart Chief Financial Officer John David Rainey said that electronics, home items and clothing were “problem areas” that required a major reduction in stock.

Similarly, Target slashed prices on general merchandise such as clothing, electronics and home goods. But those price cuts seemed to do little good. Target ended the second quarter with 1.5% more inventory than it had three months earlier and 36% more than it had the previous year.

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The main problem for Target is that it has a much heavier dependence on discretionary items than Walmart, experts say. Walmart gets a bigger share of its sales and profits from groceries and other essentials that consumers must buy even in periods of high inflation. Target typically relies more on sales of items such as clothing, jewelry and electronics that consumers can bypass when prices are historically high.

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That reliance on discretionary items likely means Target’s results will continue to lag Walmart’s in the coming months. Looking ahead, Target reiterated its guidance for full-year revenue growth in the low- to mid-single digit range and an operating margin rate in a range of about 6%.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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