NEW YORK (CNN/Money ) -
Target Corp.'s sales warning Tuesday, on the heels of rival Wal-Mart's own caution a day earlier, is causing industry watchers to wonder if consumer spending is beginning to cool off.
Minneapolis-based Target, the No. 2 discounter behind Wal-Mart, said it now sees June same-store sales -- or sales at it stores open at least a year -- to be "well below plan" of its earlier forecast of a gain of between 5 to 7 percent for the month.
Wal-Mart, the world's largest retailer, on Monday cut its forecast for June, citing "unseasonable weather" and disappointing sales over the Father's Day weekend.
Target (TGT: down $1.73 to $42.31, Research, Estimates) shares fell Tuesday morning on the New York Stock Exchange, while Wal-Mart (WMT: Research, Estimates) also traded lower.
It only takes two for Wall Street to call it a trend, and analysts are already speculating that red flags from Target and Wal-Mart -- which accounts for about 8 percent of total chain store sales -- could be echoing other problems from the consumer sector.
"To be concerned about the strength of consumer spending is wise," said Richard Hastings, senior retail analyst with Bernard Sands. "Wal-Mart as a barometer of consumer spending is significant. Consumer spending will start to moderate off of its hot pace in the second-half of the year."
Consumers are feeling pretty good lately, Hastings said, pointing to Tuesday's positive consumer confidence report that indicated the best reading in two years. "More people have jobs, people are seeing salary gains, mortgage loans are up," he said.
But Hastings noted that while consumers are more "liquid," they are also "very debt leveraged," and rising inflation is also eroding some of the wage gains.
Lazard Freres analyst Todd Slater downgraded Target to "hold" from "buy" Tuesday, citing slowing demand and tougher comparisons.
"Target recently generated its highest [comparable] sales in 20 quarters, up 6.6 percent in the first quarter. However, this could represent a high-water mark as sales seem to be slowing and comparisons become much more difficult in the back-half of the year," Slater wrote in a research report.
"Additionally, it seems that consumers are beginning to feel the effects of higher gas prices and less financing income, and a general spending slowdown may be at hand," he added.
Weather woes again?
Prudential analyst Wayne Hood slashed his June sales estimate for Target to a gain of 2 percent from earlier guidance of a 5 percent increase.
Hood wrote in a research report to clients Tuesday that the below plan trends at Target appear to be consistent with an apparent slowdown in industry sales.
But given that sales were on-plan during the first two weeks and only decelerated during the last two, when the weather was unseasonably cool, "leads us to believe that most of the shortfall is weather-related," he added.
Hastings agreed with Hood's views.
"Weather was a legitimate factor, especially with the rains in the south. For Wal-Mart, that is a key territory," he said. "But there are bigger things going on."
"The risk for Wal-Mart is that as wages improve, consumers will go to alternative retailers such as Home Depot, Gap, Bed, Bath & Beyond or a Best Buy for better quality and more variety of products," Hastings added.
"Wal-Mart has never been able to stop its big competition from becoming better," he said. "Wal-Mart may get the volume but not the variety of brand and style selections in categories such as apparel, electronics, household goods and beauty products."
Both Wal-Mart and Target are expected to report June comparable sales on July 8.
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