What: Key learnings from Q1 earnings reports.

Why it is important: Among other elements, the level of theft described by Target is surprising, at $500mn+, while Walmart did not comment on the subject, suggesting that the rising cost of life is forcing customers into stealing products, taking a toll on retailers’ profitability and forcing them to use new methods to prevent this.

Walmart and Target, both major US retailers, reported their Q1 earnings, revealing a mixed bag and anticipating a challenging Q2 due to a slowdown in consumer spending. Walmart beat expectations in Q1 while Target fell short, but both noted a weaker consumer outlook. Still, Walmart expects improvements in H2 and raised its full-year guidance, while Target reaffirmed its guidance.

Walmart had a strong Q1, beating expectations across most metrics, with revenue growing 7.6% YoY. Despite a softer performance, Target also surpassed earnings per share (EPS) expectations. However, both retailers expect a weak Q2, with Walmart's EPS guidance coming in below expectations and Target facing "clear headwinds" in the short term.

eCommerce sales were a highlight for Walmart, growing by 27% YoY, driven by Pickup & Delivery. Target saw a decline in digital sales, but in-store sales growth outpaced digital, driven by same-day services.

Target identified retail theft as a substantial challenge, which is expected to impact FY profitability by over $500 million. On the other hand, Walmart was more muted about the issue, though they acknowledged the challenge across the retail industry.

Consumer behavior also showed signs of change due to macro uncertainty. Both companies reported that consumers are spending less on discretionary items and shifting towards necessities, such as grocery and health & wellness. Despite the shift, both retailers noted market share gains in grocery.

Walmart and Target both highlighted their membership programs, with Walmart+ and Target Circle members spending significantly more than non-members. Walmart also provided updates on its advertising and international business, reporting global ad business growth accelerating quarter over quarter.

Walmart & Target anticipate a tough Q2