U.S.-based retailers Walmart Inc. and Target Corp. this week posted strong third-quarter sales buoyed by consumers who flocked to stores and shopped online despite inflationary concerns heading into the holiday season.

Both companies drove performance in the third quarter by addressing supply chain bottlenecks early and investing in higher levels of inventory that helped position the retailers to take market share.

Arkansas-based Walmart on Nov. 16 reported third-quarter net sales of $139.21 billion, up 4.1% from the year-ago period. The figure beat analysts' expectations of $134.26 billion, according to S&P Capital IQ.

Walmart's U.S. comparable sales grew 9.2%, with in-store shopping driving growth for a range of categories including grocery, health and wellness, back-to-school items, general merchandise and holiday decor. Meanwhile, Walmart's U.S. e-commerce sales grew 8% in the third quarter, up from 6% growth in the second quarter. Walmart also added 21 million items to its e-commerce marketplace assortment during the third quarter and increased the number of items available for expedited delivery.

The company raised its full-year guidance and forecast adjusted earnings per share of $6.40 versus prior guidance of between $6.20 and $6.35.

Meanwhile, Walmart's smaller peer Target on Nov. 17 reported total revenue of $25.65 billion in the third quarter, up more than 13% from the year-ago period, and slightly beat analysts' expectations of $24.62 billion.

Minneapolis-based Target saw third-quarter comparable sales grow 12.7%, with double-digit growth across the retailer's five merchandise categories including apparel, food and beverage, home and hardline goods. Target's digital sales grew 29% in the third quarter, driven largely by same-day services including the company's Drive Up service and Shipt.

Target now forecasts fourth-quarter comparable sales to range in the high single-digit to low double-digit range.

Both Walmart and Target eked out strong sales due to their ability to overcome third-quarter supply chain challenges. Walmart chartered its own vessels overseas and proactively forecasted demand while Target diverted shipments to less congested entry points and relied in part on air freight. Target increased its inventory levels by more than $2 billion ahead of the holiday season.

The combination of Target's strong brand, merchandising partnerships with Ulta Beauty Inc. and Apple Inc., and array of same-day services also helped drive revenue in the third quarter, said Arun Sundaram, senior equity research analyst at CFRA. "Most of their stores are fulfillment hubs so if a customer places an order, there are Target employees who can go within the store and grab a product from there rather than getting it from a distribution center, which adds much more cost," he said.

Meanwhile, Walmart benefited from back-to-school shopping for in-person learning and "back to life" categories such as apparel, pet supplies and auto parts, said Brendon Fletcher, an analyst with AB Bernstein.

Walmart's low prices are also particularly appealing to middle-class consumers, who can spend around $300 in one store trip and get everything they need, from grocery to general merchandise, Fletcher said. "A lot of things that people put off for many months needed to all get done at once and it was reasonable to do it in store."

Walmart is raising prices but its price gap relative to other retailers such as The Kroger Co. and specialty grocers will continue to widen, especially if inflation remains escalated, Sundaram said. "More consumers will gravitate toward [Walmart] if they start feeling more price-conscious," Sundaram said.

E-commerce sales are rising for Walmart due to more assortment and better delivery options, Fletcher said. As of the third quarter, Walmart offers 4,300 pickup locations and same-day delivery at 3,300 stores. Its Spark driver platform is now active in 900 cities, providing access to more than 50% of U.S. households, according to the company.

Walmart and Target's performance stands in contrast to the third-quarter results reported by Amazon.com Inc., which missed Wall Street expectations for revenue as its online sales cooled from comparisons at the height of the pandemic. San Jose Calif.-based marketplace eBay Inc. also reported slower revenue growth in the third quarter and a 10% decline in gross merchandise volume.

Sundaram said Walmart and Target are performing better these days than pure-play e-commerce companies because they have invested in online capabilities and brick-and-mortar stores, which allows for localized fulfillment of goods. Amazon has its line of Whole Foods Market Inc. stores and is building out its physical store footprint, but Walmart's network of 10,500 stores is far larger.

"Walmart has a huge advantage in that space because they are everywhere," Sundaram said. "Amazon realizes that, which is why they are investing in their brick-and-mortar presence."

Still, both Walmart and Target saw their stocks decline after reporting third-quarter earnings, which Sundaram attributed to investors reacted to the companies' gross margins contracting due to rising costs. Walmart's U.S. gross profit rate declined 12 basis points while Target's gross margin rate of 28% was 2.6 percentage points lower than a year ago.

As of market close Nov. 18, Walmart and Target's stock prices were down 3.1% while eBay's price was up 1.1% and Amazon's was up 4.8% compared to a week prior.

Sundaram characterized the drop in Walmart and Target's stock as an "overreaction," adding that both retailers are gaining market share and are well-positioned heading into the holiday season. "Those are the things I think investors should look at rather than some of the near-term cost pressures," he said.