A 5% Price Difference Drives Customer Migration … Walmart Laughs, Target Cries

Photo = REUTERS Among the two largest offline retailers in the United States, Wal-Mart reported an excellent performance, but Target, in contrast, showed a sluggish performance. On the 20th (local time), the stock price fell 20% to $122 on the US stock market. This is the biggest daily decline in Target stock in two and a half years.

Target announced today that it recorded sales of $25.7 billion (KRW 36 trillion) and earnings per share of $1.85 for the quarter that ended on November 2. Sales were slightly below Wall Street expectations of $25.9 billion, but earnings per share were well below expectations at $2.30.

Profitability issues continued in the fourth quarter, which included the holiday shopping season, and the company expected fourth-quarter profit to be between $1.85 and $2.45 per share. This is also lower than analysts’ estimate of $2.65 per share. Accordingly, annual earnings per share fell to $8.30 to $8.90, below the previous range of $9 to $9.70. Wall Street had expected $9.56 per share.

Some analysts attributed Target’s sluggish performance to losing some of its customer base to Wal-Mart.

Target CEO Brian Connell said last quarter the company incurred additional costs by changing shipping routes for its holiday shopping products in anticipation of a strike at its eastern ports. In addition, it was revealed that the decline in demand for discretionary consumer goods such as clothing and household goods contributed to a decline in profits.

On the other hand, Walmart announced its earnings a day ago and said that sales of discretionary products such as housewares, toys, and clothing, rather than essentials such as groceries, were also strong.

Americans have been remarkably resilient in the face of inflation and high interest rates, but they are also price conscious and selective. American shoppers view Target as a superior shopping option to Walmart.

Karen Short, an analyst at Melius Research, estimates that the price difference between Target and Walmart is between 4% and 5% for essential items. In other words, Target is dealing with items that are almost 5% more expensive. As a result, consumers who became aware of price differences moved to other locations, such as Walmart, instead of Target.

In fact, Walmart announced the day before that it had continued to increase its market share among high-income shoppers, a group previously favored by Target.

Citibank analyst Paul Lehuez lowered his investment opinion on Target from buy to neutral and lowered his target stock price from $188 to $130, saying that with the dynamics of the customer base, Target will likely lose more market share to Walmart .

On the other hand, Oppenheimer analyst Rupesh Parikh rated Target stock as ‘outperform’ and set his target price at $156, saying that the consumer spending environment is improving and investment levels are appropriate.

DA Davidson analyst Michael Baker also maintained a buy rating, saying Target lost share this quarter, saying it fluctuated significantly from quarter to quarter, but was optimistic about 2025.

Guest reporter Kim Jeong-ah [email protected]