Target’s (TGT) first quarter wasn’t a direct strike on the bullseye, as shoppers continued to hesitate heading down the more discretionary departments of the store amid elevated inflation and a sluggish economy.
“We came into 2023 clear-eyed about what consumers are facing with persistent inflation and rising interest rates,” said Target chairman and CEO Brian Cornell on a call with reporters. “We were determined to build on our guests’ trust by unifying as one team to deliver affordable joy each and every day as consumers and businesses navigate a third straight year of dynamic challenges.”
The impact of the various economic crosscurrents weren’t hard to spot on Target’s earnings release.
Target called out “softness” in discretionary merchandise such as apparel and home goods. Digital comparable sales dropped 3.4% from a year ago. The company repurchased none of its shares in the quarter, either.
The retailer also guided second-quarter earnings to below analyst estimates, setting a cautious tone on the potential start of the key back-to-school shopping season.
Cornell is staying optimistic the second half of the year brings better tidings, however.
“I think the combination of the traffic we’re seeing, the relationship we built with guests, the flexibility that the actions we took on inventory provides us in the back half of the year, and that great combination of new on trend merchandise 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 through a challenging consumer environment with the right agility and flexibility to continue to meet guest needs,” Cornell told Yahoo Finance on the call.
The Earnings Rundown
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Net Sales: +0.6% year over year to $25.3 billion vs. estimates for $25.18 billion
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Gross Profit Margin: 26.3% vs. 25.7% a year ago and estimates for 26.52%
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Inventory Growth: -16% year over year vs. estimates for -5.1%
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Diluted EPS: -6.2% year over year to $2.05 vs. estimates for $1.80
What else caught our attention
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Inventory fell 16% from the prior year, led by a 25% reduction in stock of discretionary categories like apparel and home goods.
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Digital comparable sales fell 3.4% vs. a 3.2% increase in the year ago quarter.
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Beat Wall Street earnings estimates for the second straight quarter after three straight misses.
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First-quarter earnings per share are seen in a range of $1.30 to $1.70 vs. $1.96 estimate.
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Full-year earnings per share seen in a range of $7.75 to $8.75 (reiterated) vs. $8.36 estimate.
Pre-earnings vibe on Target
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Year-to-Date Stock Price Performance: Target +5.8% vs. +7.4% for the S&P 500 vs. +5.7% for Walmart.
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One-Year Stock Price Performance: Target -28.2% vs. +3% S&P 500 vs. +2% Walmart.
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Bank of America: “We maintain our neutral rating as we believe Target’s strong omni-channel positioning, discount store decade exposure, and valuable multi-category assortment will be overshadowed by discretionary pressures.” -Analyst Robert Ohmes.
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Jefferies: “Currently, Target is trading at 14.9x FY’24 P/E, 2.5x below its historical average. At this multiple, we believe that Target is undervalued with upside ahead as fundamentals improve.” -Analyst Corey Tarlowe.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on the banking crisis? Email brian.sozzi@yahoofinance.com
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