Target Corporation (TGT) or Staples, Inc. (SPLS)?

The big-box stores have taken a beating during the recently ended quarter, most of them dragging their stocks down along with falling sales figures. CNBC Mad Money‘s Jim Cramer recently cited this period as one of the worst times for retail that he can remember. Let’s put two big-box stores side by side for a quick comparison: Staples, Inc. (NASDAQ:SPLS) and Target Corporation (NYSE:TGT). Both took decent hits upon their earnings releases, with the former down as much as 15% over the course of just a few days. Though the two are not in identical businesses, they face many of the same headwinds and hold similar opportunities. Here’s my quick pick between the two.

Downbeat earnings
Target Corporation (NYSE:TGT) was able to provide the better of the two earnings reports, with an EPS at the top of management’s guided range, but same-store sales that were up just 1.2%. The company missed top-line sales estimates and delivered weak guidance, prompting a sell-off that has the stock trading down roughly six points for the week. The company is expanding fast in Canada, having just met the halfway point for its 124-store goal, but it’s costing more than expected. Management originally anticipated a cost of $0.45 per share for the year, related to the Canadian buildout, but that number has now risen to $0.82 per share — frightening investors and analysts.

Staples, Inc. (NASDAQ:SPLS) had a worse report. The company saw net income shrink from $0.19 per share in the year-ago quarter to $0.16 per share in the just-ended second quarter. Top-line sales dropped 2%, while same-store sales fell about 3%. Looking ahead, the company sees full-year sales dropping in the low single digits, prompting a major stock sell-off.

Both companies had little, if anything, to celebrate in their earnings reports, but Staples, Inc. (NASDAQ:SPLS) took a far bigger beating. Looking beyond the dreadful headline numbers, though, there are some interesting points for both companies.

eStrength
As Fool analyst Blake Bos mentioned recently, Staples, Inc. (NASDAQ:SPLS) has the number two e-commerce business, trailing only Amazon.com with $10 billion in Web sales. This is a tremendous margin of safety for the company, which over the past year has closed more than 100 brick-and-mortar stores. Low-margin products and high costs have kept profitability down, but free cash flow actually ticked up in the previous quarter.