Target on Wednesday reported quarterly earnings that were much lower than Wall Street expectations, as the retailer coped with expensive shipping costs, higher discounts and sales of options from TV to bike lower than expected.
Shares fell nearly 20% in pre-market trading.
Here’s what Target reported for the first fiscal quarter ended April 30, compared to Refinitiv’s consensus estimate:
- Earnings per share: adjusted $2.19 vs $3.07 expected
- Revenue: $25.17 billion vs. $24.49 billion expected
National retailer, known for low-priced luxury clothing brands, home decor, etc. a particularly high sales period. A year ago, shoppers had extra dollars in their pockets from stimulus checks and reflected a feeling of optimism in their purchases when they received their first Covid-19 vaccine.
Sales increased year-on-year. Comparative sales, a key metric that tracks sales at stores open for at least 13 months and online, rose 3.3% in the first quarter. According to StreetAccount’s estimates, that was more than a 23% increase in sales in the last quarter and higher than Wall Street’s prediction of 0.8%. At Target stores and websites, traffic increased 3.9%.
Even so, CEO Brian Cornell said the company missed the mark because its profits “come with unusually high costs.”
“While we saw good revenue growth during the quarter, we made less of a profit than expected or intended over time,” he said on a call with reporters.
Among the challenges, Target said profits were hit by inventory arriving too soon and too late, compensation and increased headcount at distribution centers, and a combination of sales looking like different from before. Target’s results are reflected Walmartquarterly earnings performance of. Walmart reported Tuesday that it also missed earnings, also citing higher inventories and more cost pressures. Shares of Walmart fell more than 11% on Tuesday and hit a 52-week low.
Target reiterated its revenue forecast, forecasting average single-digit growth this year and beyond. It does not provide earnings per share estimates.
Target’s net income for the quarter fell to $1.01 billion, or $2.16 per share, from $2.1 billion, or $4.17 per share, a year earlier. Excluding items, the retailer earned $2.19 per share, 88 cents short of the $3.07 expected by analysts surveyed by Refinitiv.
Adjusted earnings per share fell sharply – down nearly 41% year-over-year.
Total revenue rose to $25.17 billion from $24.20 billion a year ago, above analyst expectations of $24.49 billion.
While Target and Walmart both missed profit expectations due to large margins, they differed in their depiction of the American consumer.
Walmart’s chief financial officer, Brett Biggs, told CNBC that the big-box retailer has seen some budget-strapped customers turn to the store brand for cold cuts and buy half a gallon of milk rather than one full box. Some others, he said, are looking for new consoles and patio sets.
Meanwhile, Target CEO Brian Cornell said on a media call that the company is seeing a healthy consumer, but one who lives – and spends – differently while marketing. continue some pre-pandemic habits.
For example, Cornell said toy sales stood out in the first quarter and grew at a strong rate as families continued to throw larger birthday parties for children. Luggage sales have increased by more than 50%, he said.
On the other hand, sales of items like TVs, kitchen appliances and bicycles fell as consumers shifted their spending toward experience-based purchases like booking rides and buying restaurant gift cards, Mr. speak.
However, Cornell warned that cost pressures “will persist for the foreseeable future,” noting that some are beyond the company’s control. One of those factors is gas prices, which hit a national average of $4,523 a gallon on Tuesday, according to AAA.
However, he said he will continue to invest in the business, opening new stores, and said Target’s bright, long-term trajectory remains the same.
With inflation at its highest level in nearly four decades, Chief Financial Officer Michael Fiddelke said on a call with reporters that Target will focus on providing value, even if that means attractiveness. incur some costs. The upside, he said, “continues to be the last lever we pull.”
“We’ve won a lot of trust over the last few years with the investments we’ve made at price, and we don’t intend to trade that in the current environment,” he said.
As of late Tuesday, Target’s stock is down about 7% so far this year. Shares closed at $215.28 on Tuesday, bringing the company’s market value to $99.82.