Wal-Mart, Target results to be study in contrast
NEW YORK (Reuters) - It will be a study of contrasts when the two biggest U.S. discount retailers report third-quarter earnings within the next full week.
Wal-Mart Stores Inc (WMT.N) is scheduled to release earnings Nov 13, while Target Corp (TGT.N) is set for Nov 17.
After years in which Target's sales outperformed those at larger rival Wal-Mart, the economic downturn has flipped the fortunes of the two retailers.
Wal-Mart, the world's biggest retailer, is expected to report higher third-quarter profit, as shoppers head to its stores for deals on necessities like groceries and medicine.
But Target is facing its fifth consecutive quarterly profit drop. Its shoppers, following more austere budgets, are cutting back on trips to the retailer and avoiding purchases of its once-hot cheap but chic clothes and home decor.
Investors are watching to see if Target can get its sales on track for the fourth quarter, which includes the holiday season and accounted for 36 percent of its profit last year.
They are also waiting to see if Target will bow to pressure from William Ackman, an investor who has proposed that Target spin off a separate company that would own the land on which its stores are built.
Meanwhile, analysts are dialing back expectations for Wal-Mart as a stronger U.S. dollar lowers the value of its international sales.
"We expect foreign currency exchange risk could serve as a headwind to sales and profitability for the remainder of the year and into 2009," wrote Barclays Capital analyst Robert Drbul in a research note.
WAL-MART TAKES AGGRESSIVE STANCE TO GAIN SHARE
Sales at Target's stores open at least a year, or same-store sales, largely outperformed those at Wal-Mart from early 2003 until November 2007, according to ThinkEquity LLC.
That trend began to reverse itself last holiday as shoppers shifted their purchases away from discretionary items like clothes or home decor -- Target's strong suit -- toward purchases of food and toiletries -- Wal-Mart's strong suit.
Wal-Mart is now headed into the holidays determined to build on its resurgence. It held special sale events on Saturday to attract early holiday shoppers, and is slashing prices every week until Christmas to gain market share.
Wal-Mart's emphasis on low-priced food is drawing customers, but could hurt profits if it cuts prices too drastically, said Janna Sampson, co-chief investment officer with Oakbrook Investments.
"Wal-Mart is seeing quite substantial sales from groceries," she said. "I think that the quality of some of the sales may not be as good as the total sales numbers look, and that will impact profit margins." Continued...
