. That raises the bar for the holiday quarter. Walmart and Target collectively have almost $8 billion more inventory than a year earlier, exceeding the $7 billion of additional sales Wall Street is expecting the two companies to make in the fourth quarter.
Still, at the top of investors’ minds will be the impact on profitability. While margins for both retailers broadly expanded this year, profitability eroded last quarter as the companies rushed to stock up on both inventory and labor.to import goods ahead of the holiday season, for example. Walmart said it hired 200,000 new associates to handle holiday sales, while Target added 100,000 seasonal hires. Both companies also raised wages to attract workers in a tight labor market.
On Wednesday morning, Target’s finance chief, Michael Fiddelke, said it is difficult to predict how much of the cost pressures seen last quarter would be temporary. There is a good chance margins could look worse before they get better. Those are near-term fears, though. Walmart and Target are taking the right approach by growing revenue and customers while they can, even if it means sacrificing the bottom line for the near future. Both retailers have—such as advertising and third-party logistics or shipping —that will clearly see a boost from a higher revenue base. Walmart’s advertising segment already generated enough to offset gross margin loss last quarter, for example.
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