Target tops earnings expectations, even as sales barely budge and consumers watch spending

">Target Wall Street’s earnings topped expectations on Wednesday, even though the discounter’s sales barely grew year-over-year And its buyers bought more necessities.

Shares declined in premarket trading as the retailer disappointed with its fiscal second-quarter forecast.

The big-box retailer stuck with its full-year outlook. It expects comparable sales to range from a low single-digit decline to a low single-digit increase for the fiscal year. Target said its full-year adjusted earnings per share would be between $7.75 and $8.75.

Even as customers buy fewer discretionary items, Target is attracting them to stores with groceries, everyday essentials and on-trend items, CEO Brian Cornell said on a call with reporters. Said.

Here’s Target’s report for the three-month period ended April 29, compared to Refinitiv consensus estimates:

  • Earnings per share: $2.05 versus the $1.76 expected
  • Revenue: $25.32 billion vs $25.29 billion

Target’s net income fell in the quarter $950 million, or $2.05 per share, up from $1.01 billion, or $2.16 per share, a year earlier.

Total revenue increased about 1% from a year earlier to $25.17 billion, which slightly exceeded analysts’ expectations.

Comparable sales, a key retail metric that tracks sales at stores open at least 13 months online and offline, were flat in the first quarter compared to the year-ago period. That was in line with Wall Street’s expectations for a 0.2% increase, according to Street account estimates.

As customers buy different items, they also shop in different ways. Comparable store sales increased 0.7%, but comparable digital sales declined 3.4% from the year-ago period.

Cornell said the reduction in packages being sent to homes has affected weak digital sales. Those deliveries are skewed toward discretionary items, which include everyday necessities like food or diapers, compared to Target’s same-day curbside pickup orders. They said.

At Target’s stores and online, shopper traffic increased nearly 1%, compared with a 3.9% increase in the year-ago period.

After a growth spurt during the pandemic, Target has had a challenging year of lower profits and softer demand. Its annual revenue soared by nearly $31 billion — or nearly 40% — in the fiscal year ending this January from the fiscal year ending in January 2020.

In year ago quarter, Discounters’ woes grew as higher freight costs and popular pandemic purchases such as bicycles and kitchenware stuck on the shelves. The retailer’s stock fell after it missed Wall Street’s earnings expectations for three consecutive quarters.

after target Cleared through canceled orders and inventory glutAnother storm cloud appeared: Shoppers had become more frugal.

Target on Wednesday showed signs of getting its inventory and profits back on track. Its fiscal first-quarter earnings beat expectations and widened its gross margin rate to 26.3% from a year ago, as freight costs fell and the retailer had fewer markdowns.

Yet its operating margin rate still hasn’t climbed to pre-pandemic levels. That won’t happen until the next fiscal year or so, the company said in February.

Inventory at the end of the quarter declined 16% year-over-year, driven by a 25% decrease in discretionary merchandise categories. The company is ordering more meals and higher frequency items to better reflect changes in customer spending.

Other retailers have also noticed a change in what shoppers are shopping for. On Tuesday, Home Depot missed revenue expectations and lowered its forecast. The company’s CFO, Richard McPhail, said customers are buying fewer big-ticket projects and taking on smaller projects. Besides, he said, they are re-spending on services and have already bought many essentials when they were stuck at home due to Covid concerns.

Target’s Cornell calls out another challenge facing retailers: organized retail theft. He said Target expects the retailer’s profitability to drop by less than half a billion dollars over last year.

“The unfortunate fact is that violent incidents are on the rise in our stores and throughout the retail industry,” he said on the call with reporters.

they added the trend Hurts the shopping experience by leaving shelves half full to annoy customers and employees.

While Target reported a better-than-expected quarter on Wednesday, executives stressed that the strain on American households will pose challenges for the foreseeable future.

“The consumer is under pressure,” chief development officer Christina Hennington said on a call with reporters. “Consistent inflation, running out of savings as well as just economic uncertainty in general is having an impact on the choices they make and trade.”

Yet she said Target is getting them to open their wallets by dangling holiday-themed items, new products and low prices. It has received a pop in sales during Valentine’s Day and Easter, from food, decorations and gifts, to movie-themed toys and a new collection of women’s clothing.