What happened

Shares of the giant retailer Target (TGT 1.60%) rose roughly 4.5% today on the eve of its second-quarter earnings report and after another large retailer, Walmart (WMT 0.62%), reported better-than-expected earnings results. 

So what

Walmart this morning reported adjusted earnings of $1.77 for its most recent quarter on total revenue of $152.6 billion. Both numbers beat analyst estimates.

"The actions we've taken to improve inventory levels in the U.S., along with a heavier mix of sales in grocery put pressure on profit margin for Q2 and our outlook for the year," Walmart's CEO and President Doug McMillon said in an earnings statement.

He added:

We made good progress throughout the quarter operationally to improve costs in our supply chain, and that work is ongoing. We continue to build on our strategy to expand our digital businesses, including the continued strength we see in our international markets.

Walmart also managed to maintain its outlook for the back half of the year. The company is expecting consolidated net sales growth of roughly 4.5%. Consolidated adjusted operating income is projected to fall 9% to 11%, which is actually an improvement from prior guidance.

Given that Target and Walmart are competitors and in the same space, investors are clearly banking on the fact that Walmart's favorable results will carry over to tomorrow when Target reports earnings.

Now what

In a research note, analysts from the Telsey Advisory Group expect Target to "benefit from the strength of its grocery business, supported by favorable macro trends--continued at-home consumption and high inflation."

However, the analysts cautioned that the tailwinds in the grocery division are likely to be offset by headwinds in consumer discretionary spending, which has been a theme in the retail sector as of late. So, yes, I am expecting a decent quarter from Target tomorrow and will be curious to see if there is any updated guidance as well.