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For Americans, there is something uniquely depressing about bad quarterly results from Wal-Mart Stores Inc. The company employs 1.3 million people in the U.S., a per cent of the employed population. It sells Americans over a quarter-trillion dollars of goods annually, more than a tenth of all retail sales. So when Wal-Mart says its U.S. comparable-store sales did not grow and cuts its growth targets, as it did last week, everyone shivers a bit.
Investors in Target Corp. – which reports its own results on Wednesday – don't just shiver. Since Wal-Mart's bad numbers, Target's shares have fallen almost as much as its larger rival's. For most of the last two years, in fact, the stocks have been in step – despite big differences between the two. Most importantly, Target is slightly upscale of Wal-Mart. This is working in its favour, judging by comparable-store sales in the U.S.: over the eight prior quarters, Target had averaged 2.7 per cent, to Wal-Mart's 1.4 per cent. Wal-Mart makes a third of its revenue internationally; Target is only now going abroad – to exotic Canada. Wal-Mart is more focused on food (half of U.S. sales) than Target (a fifth). Target, finally, lacks a warehouse club division to match Wal-Mart's Sam's Club.
The market has looked at these contrasts and decided that, for now, they do not amount to much. Both trade at about 14 times forward earnings (two years ago, they both traded at 11). Does this make sense?
The two companies have not always traded together: during the 2008 tumult, down-market, staples-driven, geographically diverse Wal-Mart did radically better. Target bounced in the happier years that followed. So if the American consumer is slipping backwards again (as demonstrated by soft results not only at Wal-Mart but at mid-market Macy's and fancy Nordstrom, too) Wal-Mart may merit a premium. Against this Target's partisans will point to its greater growth and its opportunities abroad. The parallel valuations allow for a cheerful little wager: pessimists take Wal-Mart; optimists, Target. Place your bets.
This content appears as provided to The Globe by the originating wire service. It has not been edited by Globe staff.