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The two biggest retailers in the U.S. beat third-quarter earnings estimates this morning. And that bodes well for the upcoming holiday shopping season.
Both Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) posted impressive year-over-year earnings growth. Target grew its profits by 15% last quarter. Wal-Mart’s earnings increased by 12.5%.
But there was a caveat to those earnings. While Target’s revenues climbed 3% from a year ago, Wal-Mart’s revenues – while improved – fell short of Wall Street expectations. Its same-store sales also improved only 1.5%, trailing the 4.6% analysts were expecting.
As a result, Wal-Mart’s stock is falling today, while Target’s is rising.
Target shares climbed 2.4% in early trading. Wal-Mart shares fell nearly 4%.
Despite some of Wal-Mart’s shortcomings, the average 14% earnings growth among the top two U.S. retailers is encouraging as Black Friday and the holiday shopping season approaches.
Last year Wal-Mart earned a whopping $5.1 billion in the fourth quarter alone – a full billion more than any other quarter. Target’s fiscal fourth-quarter profits came in at just under $1 billion – 39% more than any other quarter.
Whether the two companies can maintain such an impress clip this year remains to be seen. The fiscal cliff is of course weighing heavily on many people’s minds. If a deal to avoid it doesn’t get done before the holidays – as President Obama is hoping for – it could precipitate a slowdown in consumer spending over the next six weeks.
So the true test of the U.S. economy’s strength might not come until these two retail behemoths report their next earnings.