Wal-Mart (WMT) Earnings Miss Target, Benefitting…Target (TGT)?

It was a tale of two earnings reports for America’s two largest retailers. Wal-Mart (NYSE: WMT), the No. 1 retail chain in the country, reported third-quarter earnings that missed analyst expectations and were down nearly 3 percent from a year ago. Meanwhile, Target (NYSE: TGT), the second-biggest retailer in the U.S., saw its earnings rise 3.7 percent year-over-year in the quarter that ended October 29.

Target posted third-quarter profits of $555 million or 85 cents a share. That’s up from $535 million, or 75 cents a share, a year ago. The 85 cents a share beat analyst expectations by 11 cents.

News of the company’s strong earnings gave its stock a 2 percent bump in early-morning trading, up to $54.25 a share. Wal-Mart’s stock fell slightly, to $56.78, after its earnings announcement.

Not that Wal-Mart’s is in any danger of losing its top-retailer status to Target just yet. Wal-Mart has a market capitalization of $197 billion; Target’s is $36.5 billion – pocket change by comparison. Also, Wal-Mart’s third-quarter profits of $3.3 billion were still more than six times Target’s profits. But they were less than the $3.4 million Wal-Mart took in during the 2010 third quarter.

It’s too early to tell whether Target stole away a few of its rival’s customers. Fewer debt problems with the credit-card side of its business contributed to Target’s third-quarter gains. Bad-debt expenses dropped 64 percent – from $110 million to $40 million – from the previous year.  The company’s credit card expenses dropped 44 percent, to $109 million, from the previous year.

One area where Target may have taken a bite out of Wal-Mart is in food sales. Target added groceries to more of its 1,767 U.S. stores.

With the holiday season forthcoming, it will be interesting to see whether Target can continue to gain ground on Wal-Mart.

Published by Wyatt Investment Research at