By James Harris


Both Walmart and Target released their fiscal Q2 earnings reports on August 16 and 17, respectively.  While neither retailer had the quarter they would have desired and predicted at the outset of the year, their strategies and outcomes were significantly different.  This article will break down the results of each company and then compare the strategies and results as well as stock price results.

Walmart ended the first quarter with a glut of inventory and over the course of the second quarter, took $100M+ in retail markdowns.  At the time, they predicted that they anticipate moving through the unproductive inventory by the end of the third quarter.  This action can be clearly seen in the results that the company just reported.

Global revenue grew 8.4% at $152.9B. Comp store sales grew 6.5% with traffic increasing by 1%. These results indicate that while traffic increased only slightly, consumers spent a larger portion of their retail dollars at Walmart this year than the year prior.

Average ticket growth was 5.5% with Walmart’s e-commerce division growing 12%. Comp store growth of 6.5% is a strong number, especially for a company the size of Walmart and this aligns with past periods of inflation and/or recession when more people, including higher income shoppers, begin shopping at and spending more at Walmart to get more for their dollar.  However, the pain was felt on the bottom line with operating income declining 6.8% from the prior year, maintaining an operating margin of 4.51%.

The primary driver for this is the reduction in price of thousands of items in order to move through excess inventory, in addition to increased transportation and labor costs. The net result to inventory was a 2.2% reduction from the prior quarter.  This may not seem like a lot, but with having sold $152B in goods and services, Walmart was successful in moving through a large amount of their excess inventory, though certainly not all of it. Industry professionals are reporting ongoing requests from Walmart to support additional markdowns in the third quarter, presumably to make room for the all-important holiday merchandise that is so important to mass retailers.

Target also ended the first quarter of with a glut of excess inventory, but chose to take a different approach to address it.  Target opted for all the “pain” to be realized in the second quarter with the goal of having inventory optimally assorted for both the third and fourth quarters.

Target revenue grew 3.5% at $26B.  Comp store sales grew 1.3% with transactions increasing by 2.7%.  Average ticket growth remained flat to negative.  These results indicate that Target shoppers conducted more transactions than in the prior year, but spending less with each purchase.  However, this could also be driven by the deep nature of the discounts that Target took on its excess inventory.  Target’s e-commerce division grew by 9%.

Some of the cause for lack-luster revenue growth of 3.5% can also be attributed to deeper, more immediate markdowns, resulting in less revenue for the goods sold.  This is part of the strategy that Target announced at the end of the first quarter.  Additionally, they cancelled orders for about $1.5B in goods that were due to arrive in the second and third quarters.

If sales were somewhat negatively impacted by deep markdowns, the bottom line was devastated by it.  Operating income declining 87% from the prior year, maintaining an operating margin of only 1.2%.  This also seems to indicate that Target absorbed much of the markdown pain and shared less of it with their supplier base.  Like all other retailers, Target was also negatively impacted by increases in transportation and labor costs.

With inventory levels at the end of the first quarter of $15B, Target turned their corporate inventory 1.7 times in the second quarter, ending the second quarter with a slight increase in quarter-to-quarter inventory of 2.2%.  Target stated that the inventory they now have in stores and inbound is more in line with current shopper behavior and gave a strong outlook for sales as a result.

These conflicting strategies with their starkly different results could have many different ends in mind.  Both companies saw their stock price drop, as did S&P Retail Select Industry Index.

The index declined 7% from May 2 to August 23 with Target’s stock declining 30% and Walmart declining 12%.

Both companies repurchased shares (WMT: $5.7B, TGT: $2.6B) and both provided dividends (WMT: $3.1B, TGT: $417M) which must be taken into account for the total stock performance, but focusing solely on the stock price, Walmart appears to have won the second quarter.

The question remains what the critical third and fourth quarters have in store, and how these divergent strategies play out through the rest of 2022.