Why Investors Snubbed Target’s Earnings but Cheered Walmart’s

Two of the biggest retailers in the U.S., Walmart (WMT) and Target (TGT), recently reported earnings that beat analysts’ estimates, but only Walmart’s stock price jumped following the news of its performance. Target’s stock price tumbled when it posted results.

Both companies highlighted how inflation is affecting customers’ habits, with spending focused on necessities and less on discretionary items—a common theme across recent earnings reports from other retailers such as Lowe’s (LOW) and Home Depot (HD). However, those trends appeared to benefit Walmart more than Target.

Target Hit by Pullback in Discretionary Spending

While Target’s first-quarter earnings came in slightly above analysts’ estimates, its report Wednesday showed profit and revenue declined from a year ago as the retailer said it continued to be negatively impacted by a pullback in discretionary spending as inflationary pressures weigh on consumers.

Target shares tumbled 8% Wednesday after the company’s earnings release and have lost over 9% of their value this week, erasing most of their gains since the start of the year.

Walmart Says It Benefitted From Customers’ ‘Value-Seeking Behaviors’

By contrast, Walmart’s report last week showed first-quarter revenue and profit surged from a year ago, with the retailer suggesting that it gained from consumers’ “value-seeking behaviors” and the retail giant’s focus on offering lower-cost options as inflation “stretched” many consumers’ budgets. Walmart also noted that its share of higher-income consumers who make over $100,000 annually increased.

Shares of Walmart surged close to 7% last Thursday after the company’s results were released, and have climbed about 2% over the period since.

Slashing Prices To Stimulate Sales

In a bid to appeal to price-conscious shoppers, Target announced a plan Monday to lower prices on some 5,000 of its popular items over the course of the summer. The announcement came after Walmart said last week it has rolled back prices on nearly 7,000 items.

“While near-term sales remain pressured, we believe TGT’s focus on value positions it well for share gains going forward,” Bank of America analysts wrote in a Wednesday note, reiterating a “buy” rating for Target stock with a price target of $190.

Bank of America analysts also reiterated a “buy” rating for Walmart after the company’s earnings report last week, and raised their price target for Walmart stock to $75 from $67, citing Walmart’s “strong value offering” and “momentum across all income cohorts.”

Target shares were about 2% higher for the year so far at $145.23 as of Friday’s close, while Walmart shares were up more than 24% over the same period, finishing at $65.38 Friday.