What Target Says About Walmart
Target's plight conveys the following message: People who think Walmart will raise prices In response to President-elect Donald Trump's likely increase in tariffs on imports from China.
Message: That's not happening.
Target's stock price plummeted Sales fell more than 21% on Wednesday, the biggest drop since the pandemic-era plunge in May 2022, after the company reported quarterly results that disappointed investors. Same-store sales grew just 0.3%, far below the 1.4% expected by analysts. The company's fiscal year earnings forecast has been lowered to $8.30 to $8.90 per share from the previous range of $9 to $9.70. Wall Street had expected earnings of $9.56 per share for the fiscal year.
walmart stocksBy contrast, shares rose 3% after the company reported better-than-expected results and raised guidance. Same store sales increased 5.3% For the quarter ended Oct. 25, the company beat expectations for a 3.8% increase in sales. This is the 11th consecutive quarter that Walmart has exceeded analyst sales estimates.
The largest U.S. retailer also raised its fiscal year outlook for the third time in a row, saying it expects net sales to rise 4.8% to 5.1% at constant currency. Just three months ago, the company had forecast sales growth in the range of 3.75% to 4.75%. The stock price has increased 63.5% since the beginning of the year.
After announcing the financial results, chief financial officer of walmart In an interview with CNBC, he said it's too early to say which products may see their prices rise due to tariffs.
“We never want to raise prices,” CFO John David Rainey said. “Our model is everyday low prices, but there will probably be some cases where prices will go up for consumers.”
that calm statement Continuously publish misleading headlines President Trump's tariffs probably As a result, the price will go up. CNBC asserted, “Walmart may have to raise some prices if President Trump's tariffs go into effect, CFO says.” “If President Trump's tariffs go into effect, these retailers could raise prices,” Axios reported.
While not technically incorrect, note that I'm saying “may”, not necessarily, that Walmart will raise prices. The message was clear enough. Tariffs coming soon to Trump voters.
Walmart's profits are an opportunity for Target
But a closer look at Walmart and Target's quarterly results shows that's not the most likely scenario. Walmart's great quarter is not unrelated to Target's terrible quarter. The biggest retailers appear to be stealing market share from Target. Walmart saw strong demand for household goods and toys, but Target said these were weak areas. In other words, America's largest retailer is in a certain situation. Zero-sum cage match for customer dollars.
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It's not a situation that creates pricing power. Quite the opposite. If Walmart raises prices to maintain profit margins on tariffed products, there will be an opportunity for Target to regain market share. Amazon founder Jeff Bezos is said to have said: “Your margin is my chance.”
Even if it didn't face stiff competition from Home Depot, Lowe's, Kroger, Amazon, and Costco. Walmart will have a hard time raising prices to offset the tariffs. As far as anyone knows, Walmart customers are already getting the most out of their in-store spending. If the price of a tariffed product increases, sales of non-tariff items will decrease or prices will have to be lowered. Walmart is well aware of this, and is unlikely to change its relative prices just because tariffs raise the cost of some of its inventory.
A smarter strategy for Walmart would be Sourcing products from outside China. Ten years ago, Walmart shelves were filled with tons of Chinese-made products. By some estimates, two-thirds of Walmart's non-food products were imported, primarily from China. Now, the company says two-thirds of its products are American-made. The remaining imported inventory is increasingly sourced from outside China. Rather than abandoning “everyday low prices” and driving customers away, Walmart Accelerate decoupling from China.
Political perspectives also need to be considered. If Walmart is perceived as raising prices in response to China tariffs, it is very likely that at least some customers will see this as a rebuke of the Trump trade policies they voted for. In the wake of conservative boycotts against Target and Budweiser, companies are reasonably wary of alienating customers by taking political positions. Walmart doesn't want to do that. There is a risk of being accused of being anti-Trump. This is to raise prices in response to tariffs imposed on China.
Investors are more likely to accept that margins will shrink in the short term while Walmart looks to source products outside of China, rather than losing market share to Walmart's competitors. and that is Good news for Walmart customers. Even if tariffs go up, Walmart's prices likely won't go up.
