Shares of Target Corp. turned higher Wednesday, after the discount retailer reported fiscal first-quarter results that beat expectations and reiterated its full-year outlook, but provided a downbeat second-quarter profit view due to “softening sales trends.”
Net income for the quarter to April 29 fell to $950 million, or $2.05 a share, from $1.01 billion, or $2.16 a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share fell to $2.05 from $2.19 but beat the FactSet consensus of $1.77.
Total revenue increased 0.6% to $25.32 billion, above the FactSet consensus of $25.26 billion, while same-store sales grew 0.7% to exceed the FactSet consensus for a 0.2% rise, as traffic rose 0.9%.
The stock
TGT,
climbed 2.0% in morning trading, as it swung from a loss of as much as 3.6% in the premarket just after results were released.
“We came into the year clear-eyed about the challenges consumers are facing, and we were determined to build on the trust we’ve established with our guests,” said Chief Executive Officer Brian Cornell. “It’s required agility and the ability to flex across our multi-category portfolio as we lean into value and the product categories our guests need most right now.”
Cost of sales declined 0.4% to $18.39 billion, as gross margin improved to 27.4% from 26.7%.
The value of inventory fell 6.5% from the sequential fourth quarter, and dropped 16.4% from a year ago, to $12.62 billion as of April 29.
“[W]e now expect shrink will reduce this year’s profitability by more than $500 million compared with last year,” said CEO Cornell. “While there are many potential sources of inventory shrink, theft and organized retail crime are increasingly important drivers of the issue.”
Looking ahead, Target said it was planning for a wide range of sales outcomes, given “softening sales trends” in the first quarter.
For the second quarter, the company expects same-store sales to be down in the low-single digit percentage range, compared with the FactSet consensus for a 0.1% increase. And adjusted EPS for the current quarter is expected to be $1.30 to $1.70, below expectations of $1.95.
For the full year, Target reiterated its guidance for same-store sales growth of 0.7% and for adjusted EPS of $7.75 to $8.75. That compares with the FactSet consensus for same-store sales growth of 0.6% and for adjusted EPS of $8.36.
Wells Fargo analyst analyst Edward Kelly affirmed his equal weight rating on Target’s stock and his $165 stock price target, saying he doesn’t believe the earnings report represents a positive or negative turning point on the stock.
“Q1 beat and there were encouraging data points on the margin, but weakening discretionary demand just as consumable inflation ends paints a tough [comparable-sales] picture ahead,” Kelly wrote in a note to clients. “Uncertainty around the recovery margin also remains, especially with no obvious shrink solution, mix pressures, promotional concerns and supply chain investment.”
Target’s results come a day after home improvement retailer Home Depot Inc.
HD,
lowered its full-year profit and sales guidance, citing a softening in demand with continued pressure in a number of discretionary categories.
Also read: Home Depot’s bad news might not just be bad news for Lowe’s.
The stock has gained 7.4% year to date, while the Consumer Discretionary Select Sector SPDR exchange-traded fund
XLY,
has run up 15.5% and the S&P 500 index
SPX,
has advanced 7.3%.
