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Walmart has a 'secret ingredient' in Target competition, analyst says

Walmart (WMT) may have an edge over its competition, Target — selling gasoline. Walmart+ members can save 10 cents a gallon at a number of participating Walmart, Murphy, Exxon and Mobil (XOM) stations nationwide.

"This is actually Walmart's secret ingredient over Target," Jharonne Martis, director of consumer research at Refinitiv.

In Walmart's second-quarter fiscal 2023 earnings results, year-over-year sales grew 6.5%. This quarter alone, membership income grew 25.6%, according to Martis.

"When you look at the same store sales number, not only are these customers opening a membership to save money at the pump, but they're parking their cars, and they're going inside of the store and this is translating into strong same store sales, excluding gas," Martis told Yahoo Finance.

"This is telling us that the middle-class and the high-end consumer, they're trading down ... they're opening up a membership at Sam's Club [a division of Walmart] in order to save money at the pump."

Analysts polled at Refinitiv "are more bullish on the discounters that sell gasoline versus the ones that don't," like its direct competition Target (TGT) and other discount retailers like Dollar Tree (DLTR) and Dollar General (DG).

Shares of Walmart are down more than 8 percent compared to a year ago, whereas shares of Target are down nearly 33%.

Consumer spending is not as strong as it once was, according to Wells Fargo Investment Institute Investment Strategy Analyst Veronica Willis who believes the rush to spend is in the rearview mirror.

“We’re already seeing some signs that consumer spending may start to weaken and that strength in the consumer has been the bright spot in the economy," Willis told Yahoo Finance in a recent interview, "Once that starts to weaken, I think we're at risk for some more economic contractions."

In April 2021, there was a major boost in consumer spending following the release in stimulus checks. In the month of July 2022, retail sales remained relatively the same month-over-month but were up more than 10% compared to a year prior.

BLOOMSBURG, UNITED STATES - 2022/08/18: The Walmart logo is displayed outside their store near Bloomsburg. (Photo by Paul Weaver/SOPA Images/LightRocket via Getty Images)
BLOOMSBURG, UNITED STATES - 2022/08/18: The Walmart logo is displayed outside their store near Bloomsburg. (Photo by Paul Weaver/SOPA Images/LightRocket via Getty Images) (SOPA Images via Getty Images)

Brooke DiPalma is a producer and reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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