Photo: Target | iStock
Same-store sales at Walmart’s U.S. stores climbed 6.4% in the second quarter while rival Target’s declined 5.4%, although both discounters warned that consumer spending remains challenged.
Doug McMillon, CEO of Walmart, said on a call with analysts, “Jobs, wages, and pockets of disinflation are helping our customers, but rising energy prices, resuming student loan payments, higher borrowing costs, and tightening lending standards, and a drawdown in excess savings mean that household budgets are still under pressure.”
Brian Cornell, Target’s CEO, told analysts that inflation on food, beverage, and other essentials was “causing these categories to absorb a much higher portion of consumers' budgets. In addition, consumers are choosing to increase spending on services like leisure travel, entertainment, and food away from home, putting near-term pressure on discretionary products.”
Cornell further said the rollback of pandemic-relief boosts, including stimulus payments, enhanced child care tax credits, and the suspension of student loan payments, “presents an ongoing headwind that consumers continue to manage.”
Also playing a role in Target’s underperformance — its first decline in six years — was a “strong reaction” to its pride assortments that led to some conservative shoppers vowing to boycott the store.
Walmart is believed to have benefited from its high penetration in grocery, representing 59% of sales at the Walmart U.S. segment in 2022 versus 21% at Target. Many also believe Walmart benefits from a stronger value message that drives share gains across income demographics. John David Rainey, Walmart’s CFO, told analysts, “Our value proposition is resonating with customers.”
Target lowered its full-year outlook as it also expects mid-single-digit comp declines in the back half of the year due to continued softness in discretionary purchases, with the upcoming resumption of student loan repayments further straining consumer spending.
Walmart raised its full-year forecasts due to the above-plan performance. McMillon said he was particularly encouraged that general merchandise sales trends improved sequentially in the quarter and that back-to-school selling is off to a strong start. He said, “Typically, when back-to-school is strong, it bodes well for what happens with Halloween and Christmas and GM in the back half.”