Big box retailers Walmart (NYSE: WMT ) and Target (NYSE: TGT ) are still trading at multi-year lows after dropping following their most recent earnings reports.
Walmart is trading at July 2020 levels, after advancing 1.88% last week.
Last week, the company said it would lay off about 200 people from its corporate workforce.
In an interview with retail publication WWD, a Walmart spokesperson said, “We’re updating our structure and evolving select roles to provide clarity and better position the company for a strong future. At the same time, we’re investing more in key areas. such as e-commerce, technology, health and wellness, supply chain and advertising sales and creating new roles to support our growing number of services for our customers, suppliers and the community business”.
It is not yet known whether Walmart is cutting its corporate workforce, as opposed to its store workforce. The company did not offer a reason for the layoffs, though it recently cut its profit guidance for the current quarter and full year, saying inflation is taking a bite out of discretionary spending in electronics and apparel. Naturally, consumers choose to focus their reduced spending power on necessities like food.
In its July 25 announcement, the company cut its second-quarter earnings guidance by 8% to 9% and full-year guidance by 11% to 13%.
In a statement, chief executive Doug McMillon said: “Rising levels of food and fuel inflation are affecting the way customers spend and while we have made good progress in removing the hard categories, the clothing at Walmart US requires more markdown dollars. We’re now anticipating more pressure on general merchandise in the back half, however, we’re encouraged by the start we’re seeing in school supplies at Walmart US.”
Shares fell on May 17 and 18, following the company’s latest earnings report. Walmart reported earnings of $1.30 per share. Earnings data from MarketBeat shows the company missing analyst views of $1.48 per share. This also marked a year-on-year decline of 23%.
Shares fell again after July profit guidance was cut. Since then it has rebounded by 4.5%.
Walmart reports again on August 16. Analysts expect earnings per share of $1.60 on revenue of $150.51 billion.
Of course, Walmart isn’t the only mass-market retailer facing inflation-related challenges. Goalit also fell sharply after its most recent earnings report, when it warned that earnings would be battered in the short term due to markdowns on excess unbought merchandise.
Excess inventory occurs when shoppers, feeling the pinch of inflation as well as the demise of Covid-era restrictions, opt for different categories of goods than retailers had.
In its May report, Target also lowered its operating margin rate.
The company earned $2.19 per share on revenue of $25.2 billion. These marked a 41% year-over-year decline in the bottom line and a 4% increase in the top line.
Target next reports on August 17, with Wall Street looking at earnings per share of $0.72 on revenue of $26.08 billion. This would mean a significant year-over-year decline in earnings, but a small increase in revenue.
According to earnings numbers compiled by MarketBeat, the most recent quarter marked the first time since November 2018 that Target missed earnings views.
Worth noting: Walmart and Target’s unofficial “whisper number” is below official expectations. The whisper number represents a forecast that some analysts actually believe, but do not publish.
When it comes to which stock is better to buy, each has pros and cons. Target has a better high/low volume ratio, meaning buyers have been in control recently. In fact, the stock advanced 14.01% last month, 645% better than Walmart’s price performance.
On the other hand, Target can be more volatile than the broader market. Although Walmart has a much larger market cap, both are institutional-quality stocks tracked by the S&P 500, meaning they will be included in any index fund purchase.
At the end of the day, always watch for stocks with strong price momentum in a confirmed uptrend in the market. By some measures, the market is already in rally mode, although it may not always feel that way. Right now, Walmart is struggling to gain traction, while Target has made gains over the past three weeks. As always, be very cautious in the days leading up to a company’s earnings reports, as any small tidbit can send the stock tumbling and wipe out short-term gains.
Walmart is part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.