Target calls, raises Walmart’s 2Q profit and full year guidance

Walmart beat analysts’ second quarter earnings estimates by a penny when it reported earnings per share of $1.09. The company also touted the fact that it was raising its full year profit forecast, although it did so by the one cent of additional profit it had already banked during the second quarter. Walmart said it now expects full year profits to total between $4.41 and $4.51 versus prior guidance of $4.35 to $4.50.

Not to be outdone, the day after Walmart reported its results, Target came out with second quarter results that showed a more substantial earnings beat. Analysts, most of whom also cover Walmart, had forecast Target would report a profit of 97 cents, but the best that figure by six cents with earnings per share of $1.03. Target also increased its full year guidance to a range of $4.15 to $4.30, higher than the $4.12 analysts had forecast.

To be fair, Target goosed its second quarter profit figure with a rambunctious level of share repurchase activity along with what are expected to be nonrecurring gains with its soon to be sold credit card business. Target said it spent $688 million during the second quarter to buy back 14.3 million of its shares at an average price of $48.11. At the midpoint of the year the company has spent roughly $1.5 billion to buyback 29.7 million shares. Target’s earnings also benefit from surging profits at a credit card segment where less bad debt expense is driving results. For example, operating profits in the company’s credit card segment grew nearly 15% to $171 million from $149 million the prior year despite revenues that declined to $345 million from $406 million as Target incurred just $15 million in bad debt expense compared to $138 million the prior year.

Walmart’s earnings per share calculations also benefit from hefty share repurchase activity. The company has been an aggressive purchaser of its own shares the past few years and was again in the second quarter, spending $1.4 billion to buy back 26.1 million shares. So far this year, Walmart has spent $3.5 billion to buy a total of 65.4 million shares and it has plenty of dry powder, roughly $14.1 billion, following approval a few months back of a new $15 billion repurchase authorization.