Aim for higher earnings expectations, even when sales barely budge and consumers watch spending

Goal Wednesday beat Wall Street earnings expectations, even as discount sales barely grew year-over-year Shoppers bought more essentials.

Shares fell in pre-market trading, as the retailer’s fiscal second-quarter outlook was disappointing.

The big box retailer stuck to its outlook for the full year. 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 would be between $7.75 and $8.75.

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

Here’s what Target reported for the three-month period ended April 29, compared to Refinitiv’s consensus estimate:

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

Target net income in the quarter decreased to $950 million, or $2.05 a share, from $1.01 billion, or $2.16 a share, a year ago.

Total revenue rose nearly 1% from $25.17 billion last year, and came in just above analyst expectations.

Comparable sales, a key retail metric that tracks sales in stores open for at least 13 months and online, were roughly flat in the first quarter compared to the same period a year ago. That was roughly in line with Wall Street’s forecast of 0.2% growth, according to Street Account estimates.

Because customers buy different items, they also shop differently. Comparable store sales grew 0.7%, but digital comparable sales fell 3.4% year-over-year.

Cornell said the decline in packages shipped to homes has partially led to weak digital sales. These deliveries tend toward discretionary items, compared to same-day Target pickup orders, which tend to include more everyday needs like food or diapers, He said.

At Target stores and online, shopper traffic grew nearly 1%, on top of 3.9% growth in the year-ago period.

Target had a challenging year of shrinking profits and slumping demand, after picking up growth during the pandemic. Its annual revenue jumped about $31 billion — or nearly 40 percent — from the fiscal year that ended in January 2020 to the fiscal year that ended in January.

In the year-ago quarter, discounting woes gained momentum as it dealt with rising shipping costs and common pandemic purchases like bikes and kitchen appliances that remained on shelves. The retailer’s stock fell, missing Wall Street earnings expectations for three straight quarters.

After orders were canceled from Target and cleared of an inventory glut, another storm cloud appeared: Shoppers are becoming more frugal.

Target on Wednesday showed signs of getting its inventory and earnings back on track. Its fiscal first-quarter earnings beat expectations and its gross margin rate rose 26.3% year-over-year as shipping costs fell and the retailer experienced fewer writedowns.

However, the operating margin rate has yet to rise to pre-pandemic levels. The company said in February that would not happen until or after the next fiscal year.

Inventory was down 16% year-over-year at the end of the quarter, driven by a 25% decline in discretionary merchandise categories. The company has been ordering more food and high-frequency items to better reflect the shift in customer spending.

Other retailers have noticed a change in shoppers’ purchases, too. On Tuesday, Home Depot missed revenue forecasts and cut its forecast. The company’s CFO Richard MacPhail said customers are buying fewer expensive items and are getting involved in smaller projects. In addition, he added, they are spending again on services and have already bought many items they needed when they were stuck at home due to Covid concerns.

Target’s Cornell called out another challenge for retailers: organized retail theft. He said Target expects the retailer’s profit to shrink by more than half a billion dollars compared to last year.

“The unfortunate reality is that violent incidents are increasing in our stores and across the entire retail industry,” he said on the call with reporters.

added direction It harms the shopping experience by leaving the shelves half full for customers and staff.

While Target reported a better-than-expected quarter on Wednesday, executives stressed that the pressure on American households will leave them facing challenges in the near future.

“The consumer is under pressure,” chief growth officer Christina Hennington said on a call with reporters. “Continuous inflation and running out of savings as well as economic uncertainty in general is having an impact on their choices and they are making trade-offs.”

Still, she said the goal is to get them to open their wallets by hanging holiday-themed items, new products, and lower prices. She’s had big sales of food, decor, and gifts during Valentine’s Day and Easter, from movie-themed toys and new collections of women’s dresses.

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