Earnings outperform target but the company is warning for the current quarter, advocating consumer caution

Target (TGT)’s first quarter wasn’t a direct hit for Target, as hesitant shoppers continued to head to the store’s more appreciative sections amid rising inflation and an economic downturn.

“We come into 2023 with clear eyes on what consumers face as inflation continues and interest rates rise,” Target Chairman and CEO Brian Cornell said on a call with reporters. “We are determined to build on the trust of our guests by uniting as a team to deliver affordable enjoyment every day as consumers and businesses face the third year in a row of dynamic challenges.”

It wasn’t difficult to determine the impact of the various cross-cutting economic currents on Target’s earnings announcement.

The goal is called “softer” in discretionary goods such as clothing and household goods. Comparable digital sales are down 3.4% year-over-year. The company also bought back any of its shares in the first quarter.

The retailer also piped second-quarter earnings below analyst estimates, setting a cautious tone about the possible start of its prime back-to-school shopping season.

However, Cornell remains hopeful that the second half of the year brings with it better news.

“I think the combination of visits we’re seeing, the relationship we’ve created with guests, the flexibility that the actions we’ve taken around inventory provide us in the back half of the year, this great mix of new merchandise is on trend and the consistent trends we’re seeing in food and beverage, household essentials , and Beauty gives us a lot of confidence that we can navigate a challenging consumer environment with the right agility and flexibility to continue to meet guest needs.” Connection.

Earnings rundown

  • Net sales: +0.6% yoy to $25.3 billion vs estimates of $25.18 billion

  • gross profit margin: 26.3% vs. 25.7% a year ago and estimates at 26.52%

  • stock growth: -16% yoy vs estimates of -5.1%

  • Diluted EPS: -6.2% yoy to $2.05 vs estimates of $1.80

CHICAGO, IL – NOVEMBER 16: Shopping carts line up outside a Target store on November 16, 2022 in Chicago, Illinois. (Photo by Scott Olson/Getty Images)

What caught our attention

  • Inventory was down 16% from a year earlier, driven by a 25% decline in inventory in discretionary categories such as apparel and home goods.

  • Comparable digital sales decreased 3.4% versus an increase of 3.2% in the prior-year quarter.

  • It beat Wall Street’s earnings estimates for the second straight quarter after three straight losses.

  • Earnings per share in the first quarter range from $1.30 to $1.70 versus the $1.96 estimated.

  • Earnings per share for the full year are seen in a range of $7.75 to $8.75 (repeated) vs. $8.36.

Advance earnings atmosphere on target

  • Share price performance year-to-date: Target +5.8% vs +7.4% for S&P 500 vs +5.7% for Walmart.

  • Share price performance for one year: Target -28.2% vs +3% S&P 500 vs +2% Walmart.

  • American bank: “We maintain our Neutral rating because we believe that Target’s strong multi-channel positioning, exposure to decades of in-store discounts, and multi-category value assortment will be overshadowed by ratings pressures.” Analyst Robert Ohmes.

  • Jefferies: “Currently, Target is trading at 14.9x for the fiscal year 24 P/E, 2.5 times below its historical average. At this multiple, we believe Target is undervalued with upside ahead as fundamentals improve.” – Analyst Corey Tarlow.

Brian Suzy He is the Executive Editor of Yahoo Finance. Follow Suzy on Twitter @employee and on linkedin. Tips on the banking crisis? Email [email protected]

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