Goal on Wednesday beat Wall Street’s earnings expectations even as the discount store’s sales barely grew year over year and its buyers bought more necessities.
Shares were choppy in premarket trading as investors processed the company’s second-quarter report and guidance. Target said it expects sales to remain sluggish in the current quarter, marked by a single-digit decline in comparable sales.
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The major retailer maintained its full-year outlook. Fiscal year comparable sales are expected to range between a low single digit decline and a low single digit increase. Target announced that full-year adjusted earnings per share will be between $7.75 and $8.75.
Even as customers buy fewer essential items, Target lures them into stores with groceries, essentials and trend items, CEO Brian Cornell said in a call with reporters.
Here’s what Target reported for the three-month period ended April 29, compared to Refinitiv’s consensus estimates:
- Earnings per share: $2.05 versus $1.76 expected
- Revenue: $25.32 billion versus $25.29 billion
Target’s net income fell in the quarter $950 million, or $2.05 per share, versus $1.01 billion, or $2.16 per share, last year.
Total revenue rose nearly 1% from $25.17 billion a year earlier, just ahead of analysts’ expectations.
Comparable sales, a key retail metric that tracks sales in stores open 13 months or more and online, were roughly flat in the first quarter compared to the year-ago period. That was roughly in line with Wall Street’s expectations of 0.2% growth, Street Account estimates.
Because customers bought different items, they shopped differently. Comparable store sales increased 0.7%, but comparable digital sales declined 3.4% compared to the same period last year.
Cornell said a drop in packages being shipped to homes is partly the reason for weaker digital sales. These deliveries have a focus on necessities, compared to Target’s same-day curbside pickups, which tend to include more mundane items like groceries or diapers. he said.
In Target stores and online, shopper traffic grew about 1%, on top of a 3.9% growth in the year-ago period.
Target has had a challenging year of falling profits and slowing demand after a growth spurt during the pandemic. Annual sales increased about $31 billion — or nearly 40% — from the fiscal year ended January 2020 to the fiscal year ended January of this year.
The discounter’s problems intensified in the year-ago quarter as it faced higher freight costs and popular pandemic purchases like bikes and kitchen items were left on the shelves. The retailer’s stock fell as it missed Wall Street’s earnings expectations for three straight quarters.
After Target canceled orders and cleared the warehouse flood, another storm cloud rolled in: buyers had become more frugal.
Target showed signs on Wednesday that its inventories and earnings are getting back on track. Fiscal first quarter earnings beat expectations and gross margin of 26.3% increased year over year as freight costs fell and the retailer received fewer discounts.
Still, operating margin still hasn’t returned to pre-pandemic levels. However, this will only happen in the next fiscal year or later, the company announced in February.
Inventory at the end of the quarter was down 16% year over year, driven by a 25% decline in discretionary goods categories. The company ordered more groceries and high-traffic items to better reflect customers’ shift in spending.
Other retailers have also noticed a change in shoppers’ purchases. On Tuesday, Home Depot missed sales expectations and lowered its guidance. The company’s chief financial officer, Richard McPhail, said customers are buying less expensive items and are instead getting involved in smaller projects. Also, he added, they are again spending money on services and have already bought many things they needed while stuck at home due to Covid concerns.
Target’s Cornell identified another challenge facing retailers: organized retail theft. He said Target anticipates the shrinkage will reduce the retailer’s profitability by more than half a billion dollars year-over-year.
“The unfortunate fact is that violent incidents are increasing in our stores and across retail,” he said on the phone call to reporters.
He added the trend Detracts from the shopping experience as the shelves are half full for customers and staff are anxious.
While Target reported a better-than-expected quarter on Wednesday, executives stressed that the strain on U.S. budgets will pose challenges for the company in the near future.
“The consumer is under pressure,” growth chief Christina Hennington said in a call to reporters. “Persistent inflation, lack of savings, and economic uncertainty in general are affecting their decisions and making trade-offs.”
However, she said Target gets them to open their wallets by offering holiday-themed items, new products and lower prices. Sales of groceries, decorations and gifts for Valentine’s Day and Easter, movie-themed toys and fresh collections of women’s clothing saw an upswing.
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