Target experiences a decline in earnings while Walmart reaches new heights, further widening the gap between the two retail giants.

• Both discounters are facing price-conscious shoppers, but Walmart is seeing better trends with discretionary merchandise and stronger gains with online sales.
• On Wednesday, several analysts lowered their assessment of Target's stock, citing competition from Walmart and Amazon as the reason for the decline in market share.

On Wednesday, the stock of a company fell to a 52-week low, one day after its shares reached an all-time high. This decline was due to the earnings reports of rival retailers, which highlighted the divergence in their performance.

Target reported its largest earnings miss in two years and reduced its forecast due to a "deceleration in discretionary demand." The company attributed the decline to higher costs resulting from the rush to move inventory ahead of the port strike in October.

During the company's earnings call, CEO Brian Cornell stated that U.S. consumers are being cautious in their shopping habits as they attempt to recover from the effects of multiple years of inflation, and are waiting for the best possible deals.

While Walmart increased its full-year sales forecast, it noted an increase in upper-income shoppers and improved sales trends for merchandise outside of the grocery department, despite consumers seeking value.

Despite similar customer traffic gains at both stores, Walmart's sales trends outperformed Target's. Walmart's traffic growth was slightly higher, with a gain of 3.1% compared to Target's 2.4%. Additionally, Walmart's same-store sales increased by 5.3%, while Target's only rose by 0.3% year over year. Furthermore, Walmart's e-commerce sales in the U.S. rose by 22%, a larger increase than the nearly 11% at Target.

The differences between the two major retailers and their performance in the same economic climate reveal where consumers are willing to spend and where they are cutting back, highlighting the selectivity of customers regarding their spending. As retailers prepare for their most important sales season, the divergence between the successful and unsuccessful companies may become even more pronounced.

According to Michael Baker, a retail analyst at D.A. Davidson, Target's poor results are due to the company's performance, not the state of consumers.

"To put it simply, Baker stated that they are losing market share to Walmart, Amazon, and Costco."

Target's inconsistent results over the past year indicate a potential issue with execution, as the company has missed Wall Street's quarterly sales and earnings expectations in two quarters and exceeded them in two others.

He remarked, "The back-and-forth makes you wonder if there's something going on internally."

On Wednesday, several equity research analysts, including Citi Research, Deutsche Bank, and HSBC Global Research, downgraded Target's stock, citing concerns that the retailer has lost customers and sales to competitors. As a result, its stock price dropped more than 20% in trading.

According to Paul Lejuez, a retail analyst for Citi, Target's poor results and weak outlook indicate that the company is "probably losing market share" to Walmart and may face further losses unless it increases promotions.

Kate McShane, a retail analyst for Goldman Sachs, stated that one of the reasons for Target's difficulties is its merchandise mix. Approximately 60% of Target's sales come from discretionary items, such as home goods and clothing. In contrast, Walmart generates about 60% of its sales from everyday necessities, including groceries and household items like paper towels.

The volatility and bumpiness you are seeing at Target can be attributed to the discretionary categories that customers sometimes splurge or pull back on, according to the company's CEO.

Both Walmart and Target acknowledged the negative impact of the port strike, but Target seemed to attribute a significant portion of its poor quarterly performance to the stoppage.

Those kinds of cost increases may become more noticeable when sales are weak, as D.A. Davidson's Baker pointed out.

Cornell, the CEO of Target, has agreed to continue leading the company for three more years, as the company has other questions to consider in its future, including who will succeed him.

During the same call, several analysts, including UBS equity research analyst Michael Lasser, posed questions about Target's future plans and whether the company needs to make changes or invest more in its business.

Cornell announced that the company will continue to provide distinctive products and national brands, establish new stores, grow its online advertising business, and offer more purchasing options for customers.

He stated that we will adhere to our current strategy, keep pace with consumers, and ensure that Target meets the expectations of consumers nationwide.