Both Target and Walmart reported strong quarterly results but offered a cloudy outlook.
Retail giants Target and Walmart reported higher sales for the fiscal first quarter this week, but offered a cloudy outlook amid signs of strain in the low-income segment of the consumer market.
Target reported $25.4 billion in sales for the first quarter of fiscal 2026, which ended on May 2, up by 6.7 percent from a year earlier. Comparable sales rose 5.6 percent, led by a 4.4 percent rise in traffic and strong growth across all six core merchandise categories.
Gross margin came in at 29 percent, up by roughly 80 basis points year over year, driven by productivity and supply chain gains, higher-margin revenue, and lower price markdown rates.
“We saw strength coming from traffic. We saw strength that was broad-based across categories and guest demographics,” CEO Michael Fiddelke said during the earnings conference call.
Yet Target’s growth looks less impressive measured against two years ago, with sales rising by just 3.7 percent from the first quarter of fiscal 2024, led by mid-single-digit gains in categories including beauty and food and beverage. Home and apparel remained weak, still trailing 2024 levels, with management saying that the consumer spending outlook remains uncertain.
“We faced the easiest prior year comparison of the year. We’ll be facing the hardest comparison in Q2, a nearly two percentage point difference as we begin lapping last year’s launch of the Nintendo Switch 2,” Target’s Chief Financial Officer James Lee said.
Management also noted that consumer sentiment has been declining and that the company is “keeping a close eye on their spending behavior,” with guidance pointing to “more challenging cost headwinds in the first half of the year that are expected to moderate in the second half.”
Consumers Trade Down
As consumers increasingly trade down to less expensive products, Target has introduced new value-oriented offerings in response.
“For example, in toys, we’ve seen tremendous growth from new offerings priced at $20 or less, including many priced at $5 and $10,” Chief Merchandising Officer Cara Sylvester said. “The combination of on-trend toy assortments at prices busy families can afford helped to support double-digit comp growth for toys again this quarter.”
Walmart, meanwhile, posted year-over-year comparable sales growth of 4.1 percent for the first quarter of fiscal 2027, which ended April 30, with eCommerce sales climbing by 26 percent, though the company also cited headwinds from rising fuel costs.
“We absorbed approximately $175 million or about 250 basis points of operating income growth from higher-than-planned fuel costs in our global distribution and fulfillment operations,” John Rainey, executive vice president and chief financial officer, said during the earnings conference call.
Management added that “if the current elevated cost environment persists, we’d expect somewhat higher retail price inflation in [the fiscal second quarter] and the second half of the year.”
To offset those pressures, Walmart is broadening customer choices by expanding its first-party assortment, particularly in trend and fashion, while also growing its marketplace.
“We continue to play offense despite the short-term pressure on profits,” Rainey said.
Investors played defense on Wall Street, selling shares of both Target and Walmart following the release of first-quarter results.
