Walmart (WMT -0.40%) and Target (TGT -1.04%) both survived the retail apocalypse that wiped out many brick-and-mortar retailers over the past 15 years. Both of these superstore chains kept growing by staying away from dying malls, renovating their stores, expanding their e-commerce marketplaces, and using their brick-and-mortar stores to fulfill online orders. They also matched Amazon's prices while expanding their own subscription services.
But over the past three years, Walmart's stock rallied more than 140% as Target's stock sank nearly 40%. Let's see why the former outperformed the latter -- and if it remains the better superstore play.
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The differences between Walmart and Target
Walmart is a larger and more globally diversified retailer than Target. It operates 10,784 stores (including its Walmart, Sam's Club, and other regional banners) and various e-commerce websites in 19 countries.
Its largest market is the U.S., but it generates a lot of revenue from Mexico, Canada, China, and other countries. The company also owns a growing digital advertising business, Walmart Connect, which peddles ads across its digital channels and inside its physical stores. It further expanded that advertising ecosystem by acquiring the smart-TV maker Vizio last December.
Target operates only 1,981 stores, all in the United States. It previously expanded into Canada by acquiring leases of 133 former Zellers stores from Hudson's Bay Company in 2013, but it hastily exited that market just two years later. The company also operates an integrated advertising business called Roundel, but it's much smaller than Walmart Connect.
Walmart and Target both launched a wide range of private label brands to differentiate themselves from the competition while boosting their gross margins. But Walmart's core strategy is to consistently offer "everyday low prices" to compete with discount retailers. Target sells slightly pricier goods geared toward more affluent and style-conscious consumers.
That's why Walmart usually sells a higher mix of essentials and groceries than Target, which often prioritizes its sales of clothing and home decor over its other product categories. Both retailers continue to expand their online, curbside, and in-store pickup options to counter Amazon.
Why did Walmart soar as Target stumbled?
From fiscal 2022 to fiscal 2025 (which ended this January), Walmart's revenue had a compound annual growth rate (CAGR) of 6%, as its earnings per share (EPS) had a CAGR of 14%.
Walmart's comparable-store sales (comps) for its namesake banner in the U.S. (excluding fuel sales) increased 6.4% in fiscal 2022, 6.6% in fiscal 2023, 5.6% in fiscal 2024, and 4.5% in fiscal 2025. Sam's Club -- which competes against Costco Wholesale in the warehouse club market -- also continued growing. Its only soft spot was its international business, which suffered a slowdown in fiscal 2022 and fiscal 2023 as it divested some of its weaker businesses.
For fiscal 2026, Walmart expects its net sales to grow anywhere from 3% to 4% as its adjusted EPS rises 13% to 17%. It will inevitably face pressure from the Trump administration's unpredictable tariffs, but it could mitigate those challenges by shifting its supply chains, leveraging its scale to negotiate better prices with its suppliers, or gradually passing those costs on to its shoppers.
From fiscal 2021 to fiscal 2024 (which ended in February 2024), Target's revenue had a CAGR of just 0.1% as its EPS declined at a negative CAGR of 14%. Its comps soared 12.7% in fiscal 2021 as its digital sales exploded during the pandemic, but grew a mere 2.2% in fiscal 2022 and declined 3.7% in fiscal 2023 as inflation curbed consumer spending. Its comps finally rose 1.5% in fiscal 2024 as its digital sales stabilized and it sold a higher mix of daily essentials.
For fiscal 2025, Target expects its comps to stay roughly flat, its net sales to grow just 1%, and its adjusted EPS to come in between a 1% decline and 11% growth. It blamed that dim outlook on economic headwinds for the U.S. consumer and the tariffs on China, but its lower mix of groceries and essentials is also making it harder to grow in this challenging market.
Both Target and Walmart were recently hit by boycotts for rolling back their diversity, equity, and inclusivity (DEI) initiatives. However, Target's heavier dependence on the U.S. market -- and its previous promotion of more liberal ideals -- might make it a bigger target in those boycotts.
Target's smaller size and domestic concentration could make it harder to negotiate fresh deals with its overseas suppliers to navigate the tariffs. Its strategy of selling trendier but pricier products than Walmart and Amazon could also flop as cost-conscious consumers rein in their spending.
The winner: Walmart
Walmart's stock doesn't look like a bargain at 37 times forward earnings, and its forward dividend yield of 1% won't impress income investors. Target's stock looks significantly cheaper at 11 times forward earnings, and it pays a much higher yield of 4.7%.
However, I think Walmart will continue to outperform Target because it's bigger, it's growing faster, it's better diversified, and it has a clearer business strategy. Target's downside might be limited at these levels, but it certainly won't command a higher valuation until it gets its act together.
