Target Misses Earnings as Inflation-Hit Shoppers Cut Back

    Author Michelle LazoPosted on Categories InvestingTags , , , , , , , , , , , , ,
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    Target (NYSE:TGT) missed earnings expectations for the first quarter, with inflation-battered US households cited as the primary reason.

    “The biggest challenges Target is hearing about from its shoppers are inflation in food and household essentials,” said chairman and CEO Brian Cornell in a call detailing the results. He noted that inflation is putting a significant “strain on the consumer wallet.”

    Following the earnings report, Target shares fell 7% in premarket trading on Wednesday. Cornell mentioned that sales trends are “normalizing” in categories where inflation has eased. However, physical stores saw a decline in traffic and transactions, particularly in discretionary departments like home goods.

    In response to the sales slump, Target CFO Michael Fiddelke stated that the company is planning “conservatively” for the remainder of the year. Stifel analyst Mark Astrachan suggested that while fiscal 2024 consensus may remain largely unchanged, Target shares could underperform due to earnings and operating income slightly below expectations.

    To address these challenges and compete with rival Walmart (NYSE:WMT), Target announced plans to slash prices on 5,000 items, including essentials like milk, meat, and bread. The company has already reduced prices on about 1,500 items, with more cuts planned throughout the summer.

    Earnings Summary

    • Net Sales: Decreased 3.1% year-over-year to $24.5 billion, versus estimates of $24.13 billion.

    • Gross Profit Margin: 27.7%, up from 26.3% a year ago, versus estimates of 27.4%.

    • Diluted EPS: Decreased 1% year-over-year to $2.03, versus estimates of $2.05 (guidance was $1.70 to $2.10).

    • Comparable Sales: Decreased 3.7% year-over-year, versus a 0.7% increase last year and a 3.68% decrease estimate.

    • Digital Comparable Sales: Increased 1.4%.

    • Store Comparable Sales: Decreased 4.8%.

    Additional Highlights

    • Inventory: Fell 7% from the prior year.

    • Stock Buyback: No repurchases in the quarter, with $9.7 billion remaining on a prior buyback authorization.

    • Transactions and Average Check Size: Both declined by 1.9% in the quarter.

    • Cash Reserves: Target ended the quarter with nearly $3.6 billion in cash.

    • Second Quarter Projections: Earnings per share expected to be $1.95 to $2.35, versus estimates of $2.19. Comparable sales are projected to be unchanged to up 2%.

    • Full-Year Projections: Earnings per share projected to be $8.60 to $9.60 (reiteration of prior guidance), versus estimates of $9.43.

    Unlike Amazon (NASDAQ:AMZN), which leverages its cloud services business to fund retail investments, Target lacks such an asset. Amazon Web Services CEO Adam Selipsky discussed AWS’s future plans in a recent episode of the Opening Bid podcast.

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