Target warns of slowing sales

Target gave a mixed report on Wednesday as first-quarter earnings beat expectations but warned of slower sales trends for the current quarter.

Target (Ticker: TGT) reported first-quarter adjusted earnings per share of $2.05 on revenue of $25.32 billion. Analysts had expected earnings of $1.77 per share on sales of $25.3 billion.

The retailer said that “based on diluted sales trends in the first quarter,” it expects a low-single-digit decline in second-quarter comparable sales and earnings per share of $1.30 to $1.70. This is lower than Wall Street’s forecast of $1.95.

Target said its comparable sales for the first quarter were flat compared to the same period a year earlier. While customers visit more frequently, this has been compensated by them spending less per trip.

The company’s gross margin for the first quarter rose to 26.3% from 25.7% for the year-ago period, benefiting from lower shipping costs, higher retail prices, lower discounts, and a lower processing cost for online purchases. However, this was partially offset by higher inventory shrinkage – the difference between reported and actual inventory.

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For the full year, Target reiterated its current guidance for comparable sales to be in the range of a low single-digit percentage decline to a low single-digit increase, operating income growth of more than $1 billion, and earnings per share of $7.75 to $8.75.

The stock rose 0.4% in pre-market trading, after swinging sharply between gains and losses after the report.

This is breaking news. Read a preview of Target’s earnings below, and check back for more analysis soon.

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The target was roughly for 2022. Whether this year gets off to a better start depends on the company’s earnings report, due before the opening bell on Wednesday.

Investors are tempering their expectations.

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Evercore ISI analyst Greg Milich said on a call with: Barron.

Foot traffic data from indicates that visits to Target stores decreased from the fourth quarter, which could have a negative impact on same-store sales and overall revenue.

Sales estimates of $25.3 billion are slightly higher than last year’s quarter $25.2 billion, but expectations for a 0.2% increase in same-store sales are well below the 3.3% increase in 2022 and 22.9% increase in 2021. Despite the slowdown in sales, Mellish and other analysts believe the company can meet earnings estimates. The Street expects Target to post earnings of $1.77 per share, down from $2.19 in the prior year-ago quarter.

Target and competitor Wal-Mart

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WMT is often considered a leader in the retail industry, and whichever company reports first tends to set the tone for the rest of the earnings season. With consumer health poised to deteriorate in the latter half of the year, Target’s commentary and outlook will give the market a better idea of ​​how shoppers are doing, DA Davidson analyst Michael Baker writes.

“We believe the two most important factors to watch in TGT’s earnings report and call are the potential for internal margin recovery and any more consumer-related commentary,” Baker wrote in a note to clients.

At the macroeconomic level, Baker will listen for any indications of changes in inflation trends, a move away from discretionary buying, and bartering behaviour, which means that consumers are looking for cheaper products.

For the company, the big question will be whether it improves profit margins. Target’s margins took a hit last year because the company had to apply deep discounts to get rid of excess inventory. Baker wrote that the markets would see further progress on the inventory front as a positive sign.

However, there are still challenges on the road to margin improvement. The main factor is that shoppers spend less on discretionary categories, which tend to have higher margins, and more on groceries and other essentials, which have lower margins.

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“A big part of the problem in 2022 for TGT has been weakness in discretionary categories, and we believe that for TGT’s profit margin recovery story to gain momentum, it needs to see a shift in consumer shopping behavior toward certain discretionary categories,” Citi wrote. Analyst Paul LeGuise.

He added that while Lejuez doesn’t think the company saw any measurable improvement in the discretionary categories in the first quarter, any comments that would suggest things are going well in the second quarter would be well received.

The target stock has been largely flat for the year, underperforming the S&P 500’s gain of about 5%. The target was 2022 Barron Stock selection.

Write to Sabrina Escobar at sabri[email protected] and Adam Clarke at [email protected]

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