Before the start of Wednesday's session on Wall Street, two American retail giants, Target and Lowe, published their quarterly results. Despite being in the same industry, both companies show completely different results and prospects, which is quite intriguing in the context of the condition of the American consumer.
Retail sector results are significant not only for individual company investors but can also provide key information about the condition of the American economy. This is particularly important in the context of a tightening labor market and expectations for interest rate cuts by the FED.
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile app
TARGET (TGT.US)
Despite good results for the second quarter, the decline in sales of the American retail chain disappointed investors enough for the company's shares to drop by 10% in pre-market trading. Currently, after the market opened, shares are down about 8%.
Company results:
-
EPS: $2.05, expected $2.03
- Revenue: $25.21 billion compared to expected $24.93 billion
- Comparable sales decreased by 3.8% year-on-year, while in-store sales fell by 5.7%.
- E-commerce sales increased by 4.7%, which is relatively low compared to competitors
- The company's gross margin decreased to 29%, while the operating margin fell to 5.2%
- A year ago, EPS was 2.57 and revenue was $25.45 billion. Sales compared to the same period last year fell by 1%.
Source: Bloomberg Finance Lp
An evident plus for "value" investors is the very low valuation ratios of the company.
P/E is now just over 13, P/S is 0.5 and falling. However, the conclusion arises that if the company does not improve its results, these valuations will no longer be low but will reflect the new reality of the company.
The new CEO, Michael Fiddelke, intends to prevent this. Michael Fiddelke, the Chief Operating Officer, who has been with Target for 20 years, will replace long-time CEO Brian Cornell on February 1, 2026. Cornell will take the position of Chairman of the Board. Despite Fiddelke's extensive experience, the market reacted negatively. The change in the CEO position occurs during a difficult period for Target. The company is experiencing its 11th consecutive quarter with stagnation or declining sales, with sales in the first quarter of 2025 falling by 2.8%, and the forecast for the entire year remains in the range of a low single-digit decline. The causes are strong competition in the retail market, slowing consumer spending, the impact of tariffs, and controversies following Target's withdrawal from diversity, equity, and inclusion initiatives, which led to a boycott on social media and a decrease in store visits.
Considering the collapse in stock price after these announcements, the market does not believe the company's assurances about the temporary nature of its troubles.
LOWE (LOW.US)
Lowe, a competitor specializing in the home renovation sector, performed much better than Target. The company exceeded almost all expectations and provided investors with the prospect of further growth.
- EPS: $4.33 compared to expected $4.23
- Revenue: $23.97 billion - in line with expectations.
- Sales increased by over 1% compared to the same period last year, but this is below market expectations of 1.3%
- Online sales increased by 6%
- Gross margin increased to 33.8%
A problem may be the 9% drop in net revenue compared to last year.
Among the company's latest successes is the recent acquisition of "Foundation Building Materials." This move aims to strengthen the company's presence in the professional market. FBM itself brings 40,000 customers to Lowe. Success is also achieved by focusing on online sales. This is one of the reasons why the company is doing very well amid mixed results in the retail sector.
The company also emphasizes falling mortgage costs, which are assumed to drive sales.
Investors are pleased with the company's decisions, with the stock price rising by 16% this month alone. Just today, before the market opened, the company is up nearly 3%. Additional optimism is provided by a dividend at the level of 4%.
Source: Bloomberg Finance Lp
Currently, two representatives of the retail industry present two fundamentally different approaches to investing. Target is a typical choice for value investors, while Lowe promises greater expansion and growth.
Source: Bloomberg Finance Lp
As of today, the market clearly favors Lowe's approach.
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
