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.
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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.
