Target struggles where Walmart succeeds in Q1

Shares of Target (TGT) are dropping on Wednesday morning after the company posted its first quarter report, missing expectations on revenue and revealing a 3.7% drop in comparable sales year over year. The company's results starkly contrasted those of fellow retail giant Walmart (WMT), which saw an increase in comparable sales for the first quarter year over year.

Yahoo Finance Executive Editor Brian Sozzi joins Morning Brief to discuss Target's results and the differences between the retailer and Walmart.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

Read more about Target's earnings coverage from Yahoo Finance here.

This post was written by Nicholas Jacobino

Video transcript

Target shares.

They are getting hammered after the company's first quarter, earnings report missed the bull's eye by a wide mark.

The retailer chairman and Ceo Brian Cornell saying on a call with reporters that inflation is putting a quote strain on the consumer wallet.

Yahoo Finance's executive editor, Brian Sazi was on that call and has the details.

All right, Brian, what did we learn?

I wish I wasn't on that call guys because it was just wasn't good.

But I think it summarized this quarter really in one word and, and just to make it very simple to the average investor out there, uh it stunk uh really through and through the sales were down uh down about uh 3.7% for Target Walmart sales up 3.8% in the United States.

I mean, the disparity between these two companies right now is simply striking number two, you know, target has really uh been focusing over the past and cutting expenses.

So theoretically, you would think you would see profit margins going up, didn't really happen.

I didn't see any mind blowing profit margins from this company, go further down the income statement.

You'll see that customer traffic decline, Walmart traffic increased average transaction for Target down company.

Also again, for another straight quarter didn't buy back any of its stock despite having $9.7 billion left in a buyback authorization.

I think sending the signal to investors.

It's not confident in its medium term outlook everywhere you looked in this target quarter, it stunk from top to bottom and I am surprised Target is out here re reiterating its guidance on that call with Brian Cornell and the CFO and I believe was the chief uh chief merchandise officer.

They noted that inflation is starting to slow, but they're not seeing a corresponding improvement in sales and that is a big problem.

Now, if I was an analyst uh and out there visiting stores, I would essentially go out there this weekend and probably come back with a story, 10 reasons why Target is losing market share to Walmart.

And I think when you go into a target store, you could easily see targets, small section of groceries.

Walmart has greatly expanded its grocery section.

Getting more one stop, shoppers.

I can't get an oil change at Target.

I can get an oil change at Walmart and then uh just a third one before I would drop several more photos.

It's that the prices at Walmart are just cheaper.

Walmart has been very aggressive over the past year, chopping prices in everyday essentials, home goods, you name it.

And I think that's why you're finally starting to see Target Respond this week saying it's going to cut price on 5000 items by the end of the summer it has to.

And what I'm worried about, how does that impact margins?

And does that even gain the shopper back from Walmart?

Yes.

And, and that's exactly what I wanted to ask this move here.

Is it too little too late or do you think it could maybe help move the needle just a bit here in these coming quarters?

I think Target bottom line is dealing with a perception problem with American households that have been battered over the head with inflation.

For the better part of what, for almost four or five years, they don't see prices coming down.

And their first thought right now is a play into Wal Mart's tag mine, save money, live better.

And it's that simple.

I mean, there's something wrong here when Target is continuing to put up negative same store sales and Walmart is blowing things out of the water in terms of same store sales margins, guidance.

Uh not only at Walmart us and Sam's Club and I think this is a target problem.

And to your point, Sean, I think the reality is for Target stock to start working and for Target's financials to start working and improving in the back half of the year, inflation just has to continue to show uh slow down and the economy has to continue to strengthen and that's a tall order.

All right, we will continue this conversation later on the hour, we, we will be speaking with Michael Lasser.

He's U BS us hardline and broad line and food retail analyst.

He will weigh in on these results that we're just getting out here from target sauce.

Thanks.

Yeah.

Thank you.