• by Sarah Mahoney  @mahoney_sarah, May 18, 2023

Anyone looking for insights into how mainstream America handles the unsettled economy can find plenty of tea leaves in the latest financial reports from Walmart and Target. Both discounters are showing their strengths, with Walmart's sales rising an impressive 7.6%, and Target registering an encouraging 1% gain in traffic.

But both said sales trends weakened as the quarter wore on. And while Walmart raised its outlook and Target pared it back, both cite the same reason: Middle and lower-class shoppers are under pressure, driving them to cut spending, trade down and look harder for bargains.

Walmart's revenues for the first quarter of its fiscal year rose to $152.3 billion, a 7.6% improvement, or 7.7% in constant currency. That includes an impressive surge in its advertising sales, which gained more than 30% globally in the quarter, 40% in the U.S. alone.

Total U.S. revenues at Walmart clocked a 7.4% gain, with strong pick-up and delivery gains propelling a 27% increase in ecommerce. Operating income advanced 17.3% to $6.2 billion, compared to $5.3 billion in the prior year's comparable period.

Walmart now expects those sales gains to continue, projecting a 4% sales increase for the coming quarter and an improvement of 3.5% for the full fiscal year.

Grocery sales did well, especially in private-label products, and continued to gain market share, even among higher-income shoppers. Demand for discretionary categories like clothing, electronics and home furnishings fell.

At Target, sales gained a scant 0.5% to $24.95 billion, up from $24.83 billion in the comparable period of the prior year, in part due to a surprising 3.4% decline in ecommerce revenue. Earnings slipped 5.8% to $950 million from $1 billion in the comparable period.

Target, too, saw softness in discretionary categories, while purchases in high-frequency categories like food, beverage and household essentials held up. Beauty created a notably positive result, as the new Ulta in-store units helped drive a sales gain in the mid-teens.

"We came into the year clear-eyed about the challenges consumers are facing, and we were determined to build on the trust we've established with our guests," said Brian Cornell, chair and chief executive officer of the Minneapolis-based retailer, in its announcement. "It's required agility and the ability to flex across our multicategory portfolio as we lean into value and the product categories our guests need most right now."