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Target lowered its full-year earnings guidance, citing recent sales trends.
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It beat analyst expectations for second-quarter earnings, sending shares higher on Wednesday.
Earnings were $1.80 per share, compared to expectations of $1.43. The shares were up 8% in pre-market trading.
However, poor sales prompted the company to lower guidance for the rest of the year. It now sees full-year profit of $7 to $8 per share, compared to a previous estimate of $7.75 to $8.75.
Sales fell 4.9% in the second quarter from a year earlier to $24.8 billion, missing analyst estimates of $25.2 billion. Comparable store sales fell 5.4%. Inventories are down 17% from the previous year.
“We saw better-than-expected profitability in the face of lower-than-expected sales,” said CEO Brian Cornell. “We continue to take a cautious approach to our business planning and have therefore revised our financial guidance in anticipation of continued near-term challenges on the top line.”
This is a breaking news story. Here is a preview of Target earnings.
It’s been a rough summer for
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stock. Shares have shed more than 20% of their value in just three months, weighed down by concerns about slowing sales and the backlash associated with pride.
Don’t rely on the second-quarter earnings report released Wednesday morning to change the share price.
Wall Street expects Target (stock ticker: TGT) to post its first year-over-year revenue decline since 2019, according to market data from Dow Jones. Projected sales of $25.2 billion would represent a decrease of approximately 3% from the year-ago quarter.
Earnings could be a little better. Analysts estimate adjusted earnings will be $1.43 per share, up from 39 cents per share a year ago.
Still, investors are concerned that the company’s results may be inadequate, with “extremely negative” street sentiment heading into Wednesday’s earnings report, Oppenheimer analyst Rupesh Parikh wrote.
Investors in our talks remain bearish on TGT in the near term
Prospects.” “Amid these factors, we have less confidence in the share price reaction to print.”
Analysts were lowering their price target estimates ahead of the earnings report. As of Tuesday, the average price target was $157.81, down from $170.39 on July 31, according to FactSet.
This summer alone hasn’t been tough for Target — the past year has been challenging for the retailer. In 2022, Target had to cut its guidance twice and miss its earnings forecast three times.
The year 2023 has not been kinder. The stock fell in May after Target’s first-quarter earnings report after the company released second-quarter guidance that fell short of Street expectations. This led to a nine-day losing streak, exacerbated by Target’s decision to change or remove certain products from Pride’s annual collection in response to backlash from some of its customers.
Target shares are down 15% this year, and have shed 30% of their value in the past 12 months.
The controversy over Pride may reach far beyond Target’s stock price. Wells Fargo analyst Edward Kelly thinks it likely reduces store traffic and sales, and could prompt the company to lower its guidance for the fiscal year. Right now, the company expects comparable sales to range from low single-digit percentage decline to low single-digit percentage increase, operating income growth of more than $1 billion, and earnings between $7.75 and $8.75.
On top of the backlash from Pride, Target has struggled to navigate the macroeconomic environment. As inflation and interest rates continue to rise, consumers are spending less on discretionary purchases, such as home furnishings and electronics — a strength of Target — and spending more on food and other necessities.
Until consumers show “sustained interest” in these discretionary categories, it will be difficult for Target to increase sales, JP Morgan analyst Christopher Horvers wrote in a note to clients. But a recovery in discretionary spending may take some time to materialize. Economists expect consumer demand to weaken in the second half of the year, affected by the resumption of student loan payments, rising credit card balances, and slowing wage growth.
While Target’s near-term prospects look bleak, some analysts, including Barrick Oppenheimer, still believe the company is well-positioned over the long term.
“For the long-term players, we will continue to benefit from dips and
Currently low rating,” he wrote.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
