• by Sarah Mahoney  @mahoney_sarah, November 16, 2023

While both Walmart and Target surprised observers with impressive third-quarter report cards, they are also stocking up on anxiety for the holiday. Both are warning that after watching changes in recent months, they expect less seasonal spending.

Walmart posted a healthy 5.2% gain in sales, reaching $160.8 billion from $152.8 billion in the same period last year. Sales in the U.S. climbed 4%.

Those results included an impressive 20% gain in the ad sales business, with U.S. ad sales rising 26%.

Total ecommerce sales jumped 15%, while online sales in the U.S. soared 24%.

On an adjusted basis, operating income added 3% to reach $3.5 billion.

Both sales and earnings beat Wall Street estimates, which should have been a shopping cart full of good news. But company executives say they noted weaker spending in recent weeks and now expect sales for the fiscal year to increase between 5% and 5.5%.

That’s below Wall Street consensus.

Target also unloaded a mixed bag of results. While profits smashed expectations, showing the retailer is quickly adjusting to a changing consumer outlook, sales disappointed.

Revenue at the Minneapolis-based chain fell 4.2% to $25.4 billion, with comparable sales declining 4.9%. Digital sales dropped 6%.

Operating income surged 29% to $1.3 billion.

Target expects sales to decline in the mid-single digits for the fourth quarter.

Executive vice president and chief growth officer Christina Hennington acknowledged that rising interest rates and student loan repayments are causing a “mental and emotional tug of war.”  In an earnings call webcast for investors, she added, "consumers are looking for a respite, which is why we are relentless in our pursuit to provide ease, inspiration, joy, and comprehensive value every day.”

As a result, she told investors Target’s national holiday marketing will focus on both value and joy.

While Target saw declines in most discretionary categories, beauty broke the rule, with sales gains in the high single digits, partly driven by the launch of Fenty Beauty by Rihanna in Ulta shops inside Target.  Back-to-school items also did well, while electronics sales softened.  

Peter Benedict, who follows Target for Baird, rates the company as likely to outperform its peers. He sees some silver linings in the quarterly numbers. “While comparable sales remained under pressure, traffic declines moderated to -4.1%,” compared to 4.8% in the second quarter," he writes. “And discretionary categories got "less bad.’ That said, consumers remain discerning, focused on promotions and seasonal events, deferring purchases until the last moment.”

He predicts the company will bounce back to positive sales trends by the second quarter of next year.