PREVIEW-UPDATE 1-Wal-Mart, Target divergence seen in 1st-quarter

* What: Wal-Mart, Target report 1st-qtr earnings

* When: Wal-Mart on May 18, Target on May 19

* Wall Street EPS view: Wal-Mart $0.85, Target $0.86

* Target capturing discretionary sales

* Wal-Mart same-store sales seen sluggish
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By Brad Dorfman

CHICAGO, May 13 (BestGrowthStock) – Wal-Mart Stores Inc (WMT.N: ) is
expected to show it is losing shoppers to other retailers in an
improving economy when it reports first-quarter earnings next
week.

Meanwhile, rival Target Corp (TGT.N: ) has been gaining at
the expense of the world’s largest retailer. Target also
reports earnings next week and has already said that sales at
stores open at least a year rose 2.8 percent in the quarter
ended May 1.

Wal-Mart does not report monthly sales, but analysts expect
U.S. same-store sales to be flat or down. The retailer in
February forecast those sales at up 1 percent to down 1
percent, excluding the impact of gasoline sales.

“Their customer is probably recovering slower than the rest
of the market,” said David Strasser, analyst at Janney
Montgomery Scott.

With unemployment remaining high, analysts said the core
Wal-Mart customer is still more skittish about spending money
than consumers who are beginning to feel more stable as the
economy improves. The most recent jobless claim data on
Thursday showed only a slight drop in the latest week.
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At the same time, consumers who have held onto their jobs
and enjoy a higher income bracket have become more willing to
buy items like clothes and home furnishings, a shift that helps
Target, analysts said.

“Right now, they (Wal-Mart) are selling basic apparel, and
things that are selling right now are non-basic apparel,” said
Brian Sozzi, analyst at Wall Street Strategies.

In the first quarter, retailers like Target, Kohl’s Corp
(KSS.N: ) and Macy’s Inc (M.N: ) all saw rising same-store sales.

“It has to be coming from somebody and it might be coming
at the expense of (U.S.) Walmart,” Sozzi said of sales gains at
other retailers.

PROFIT UP FOR BOTH

Wal-Mart has focused even more on cash-strapped consumers
in recent weeks, cutting prices on thousands of items,
especially everyday items like food.

Target, meanwhile, is launching a new advertising campaign,
putting more emphasis on discretionary items like apparel,
though it is also spotlighting low prices on everyday items.

Both discount retailers are expected to post higher
earnings per share before one-time items.

Analysts on average forecast that Wal-Mart will post
earnings of 85 cents a share on Tuesday, up from 77 cents a
year earlier, according to Thomson Reuters I/B/E/S.

In February, the company forecast 81 cents to 85 cents a
share. It also forecast $3.90 to $4.00 a share for the year.
Analysts on average forecast $3.98 for the year.

“I don’t think their outlook will change dramatically from
what they’ve laid out,” Strasser said.

For Target, due to report on Wednesday, analysts forecast
86 cents a share for the quarter, up from 69 cents a year
earlier. The company said last week that earnings would meet or
exceed the average analyst estimate.

Wal-Mart trumped Target and other retailers during the
recession as consumers spent only on essentials and new
customers sought out Wal-Mart’s low prices.

But as the economy recovered, spending patterns shifted, a
move that has also shown up in Wal-Mart and Target stocks.

Since the beginning of the year, Target shares are up more
than 15 percent, while Wal-Mart is down more than 1 percent,
compared with a 5 percent rise for the the Standard & Poor’s
500 Index (.SPX: ).

“The first quarter might go a long way in showing whether
they maintained the share they won during the recession,” Sozzi
said of Wal-Mart.

Money

(Reporting by Brad Dorfman, editing by Bernard Orr and John
Wallace)

PREVIEW-UPDATE 1-Wal-Mart, Target divergence seen in 1st-quarter