Target Vs. Walmart: Which Earnings Report Was Better?

Shares of Target (NYSE:TGT) slipped over 5% on Tuesday morning after the company reported fourth-quarter earnings that fell short of analyst expectations, with growth initiatives placing a significant strain on its bottom line.

The fourth quarter was not all bad for Target, which also posted solid revenue growth and strong e-commerce sales in the important holiday quarter. Nevertheless, these results come two weeks after one of its biggest competitors, Walmart (NYSE:WMT) , posted Q4 figures that made many investors similarly cautious.

Both retail powers continue to face pressure from e-commerce players like Amazon (NASDAQ:AMZN) . This encroachment from online sellers have forced both Target and Walmart to make much-needed improvements recently—changes that could prove to be more beneficial in the long run.

But for now, these investments are coming at a cost. Which of these two companies fared better? Let’s take a closer look.

Earnings and Revenues

Target posted adjusted Q4 earnings of $1.37 per share, which fell short of the Zacks Consensus Estimate by two cents. This also marked a year-over-year profit decline of nearly 6%. The company noted that its bottom line was hurt by pressure from digital fulfillments costs, along with higher compensation costs.

The Minneapolis-based retailer’s total sales surged 10% to $22.77 billion, topping our estimate of $22.46 billion (also read: Target's Q4 Earnings Miss, Sales Beat Estimates).

Meanwhile, Walmart posted adjusted fourth-quarter earnings of $1.33 per share, which also fell short of our estimate of $1.36. The company’s revenues climbed 4.1% to hit $136.27 billion, coming in above our estimate of nearly $135 billion.

Sales Growth

Target noted that strong traffic growth both in stores and online led to a 3.6% jump in Q4 comparable-store sales. The retailer posted healthy comps growth across all five merchandising areas, including fashion and home furnishings.

Target’s overall customer traffic climbed by 3.2% in the quarter, driven by both online and traditional retail shoppers. Investors should also note that Target’s Q4 comparable digital channel revenues—a figure that will be closely watched from now on—surged 29% from the year-ago period.

Walmart’s comparable U.S. sales increased by 2.6% in the quarter, while same-store traffic rose by 1.6%. The big-box giant’s e-commerce sales grew 23%, which marked a huge drop off from the 50% year-over-year growth Walmart achieved in the trailing three periods.

Guidance

Looking ahead to the first quarter of fiscal 2018, Target currently expects to post earnings between $1.25 per share and $1.45 per share. The high end of that projection comes in above our current consensus estimate of $1.40 per share.

For the coming fiscal year, Target expects to post EPS in the range of $5.15 to $5.45. Our current consensus estimate calls for $5.28 per share. Target also expects to post low-single digit comps growth.

Walmart expects to post comps growth of at least 2% at U.S. stores in 2018. The company projects it will report full-year earnings between $4.75 per share and $5.00 per share. Our current consensus estimate calls for earnings of $4.96 per share. Walmart also expects to post e-commerce sales growth of 40% in its current fiscal year, after posting a 44% full-year jump in 2017.

Bottom Line

Target and Walmart have focused on bolstering their e-commerce platforms and delivery capabilities in a race to modernize their businesses. Both firms have also added to their fashion and home décor offerings, and chosen to improve current retail locations in favor of new wide-scale openings.

Walmart is currently a Zacks Rank #3 (Hold), while Target is a Zacks Rank #2 (Buy). But both retailers seem poised to charge into 2018 ready to take on Amazon and expand their businesses with eyes on the future, making both look like solid picks going forward.

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