Stocks are not feeling very inspired today.
With a little over an hour left in the trading session, the Dow Jones Industrial Average (DJINDICES:^DJI) is down by nearly 40 points, or 0.3%. Beyond the daily, yet arguably not genuine, lamentations over the upcoming fiscal cliff, the biggest news hitting the Street came courtesy of the retail sector.
Target and Wal-Mart's third-quarter earnings
The nation's two largest retailers, Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), announced earnings today. Shares in Wal-Mart are sharply lower after the company met expectations on the bottom line but missed on the top. For the quarter, the retail behemoth reported earnings per share of $1.08 on revenue of $113.9 billion. Analysts polled by Thomson Reuters had expected EPS of $1.07 on sales of $114.96 billion.
Meanwhile, shares in Target are headed higher in intraday trading, up nearly 2% after the company's earnings beat estimates on both the top and bottom lines. For the quarter, Target reported adjusted EPS of $0.90 on revenue of $16.93 billion. The consensus estimate among retail analysts was for EPS of $0.77 on revenue of $16.92.
Despite the relatively favorable results compared with the year-ago quarter -- earnings and revenue grew at both companies -- there were two principal factors that weighed the retailers down last quarter.
Given the state of the economy, consumers are remaining cost-conscious. Target's merchandising chief, Kathee Tesija, said customers "are continuing to shop with discipline, focusing on lists and budgets and occasionally splurging on more discretionary items." She went on to note that "in the third quarter, we saw an increase in trips focused only on need-based items." And Wal-Mart's core lower-income customer base is struggling against the twin headwinds of high unemployment and inflated fuel prices.
The retailers were also affected by closures due to Hurricane Sandy. According to The Wall Street Journal, Wal-Mart closed 300 of its stores as a result of the storm and suffered an estimated $35 million in damages and other expenses. All told, the damages from the storm could reach upward of $50 billion. It should be noted, however, that any negative impact felt by Wal-Mart was most certainly not shared by Home Depot (NYSE:HD), which reported higher revenue last quarter thanks to sales of generators and other storm-preparedness goods.
Beyond this, there were a number of notable takeaways from these companies earnings. First, both retailers grew same-store sales, a pivotal metric in the retail industry, from the same period a year ago. In the U.S., Target's increased by 2.9%, while Wal-Mart's grew by 1.5%.
Second, it was clear that both companies were focused on the bottom line. Wal-Mart's earnings grew by 9% over the same time period last year, while Target's increased by a staggering 15% -- though the latter's was admittedly boosted by a nonoperational asset sale.
And finally, both are preparing for a big holiday season. Speaking on the earnings call with analysts, Target CEO Gregg Steinhafel said, "As we look ahead to the fourth quarter, we feel very good about our ability to deliver inspiring merchandise, most-wanted gifts, and unbeatable value, while also generating expected profitability." To try to meet the demands of holiday shoppers, Target will be opening its doors at 9 p.m. on Thanksgiving night, while Wal-Mart's will open at 8 p.m.
Foolish bottom line
While it's great to see our largest retailers performing better than they did last year, it's still hard to deny that at least these two companies are swimming upstream against some emerging powerhouses that are positioned to rule retail in the future. To discover the identity of three such companies, check out our popular free report on retail stocks. Simply click here to download a copy instantly.
John Maxfield has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend The Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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