Target (TGT) stock drops on earnings miss

May 22, 2024 6:41 AM EDT
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(Updated - May 22, 2024 9:42 AM EDT)

Target (NYSE: TGT) shares dropped more than 9% in early Wednesday trading, following its latest quarterly earnings, which saw it miss profit expectations.

The retailer reported Q1 EPS of $2.03, $0.03 worse than the analyst estimate of $2.06. Revenue for the quarter came in at $24.53 billion versus the consensus estimate of $24.51 billion.

In comparison to the same quarter last year, Target's revenue saw a decrease of 3.1%, with comparable sales declining by 3.7%. The company's digital comparable sales grew by 1.4%, with same-day services expanding nearly 9%, driven by a growth of over 13% in Drive Up.

The company's first-quarter operating income margin rate was 5.3%, a slight improvement from 5.2% in the previous year.

Brian Cornell, chair and chief executive of Target Corporation, stated, "Our first quarter financial performance was in line with our expectations on both the top and bottom line, tracking the trajectory we outlined for this year and setting up a return to growth in the second quarter."

He also highlighted the relaunch of the Target Circle loyalty program, which added over 1 million new members in the quarter.

Looking ahead, Target anticipates a 0 to 2 percent increase in comparable sales for the second quarter, with adjusted EPS projected to be between $1.95 and $2.35.

For the full year, the company expects a similar increase in comparable sales and an adjusted EPS range of $8.60 to $9.60.

Following the report, analysts at Jefferies said the top-line results were in line with expectations.

"Q1 comp sales of (3.7%) was in line with expectations and guidance of (3%-5%)," they wrote. "Discretionary category trends continue to improve, with apparel improving by almost 4 points vs. 4Q. GM expanded ~140bps helped by merchandising initiatives. OM of 5.3% was relatively in line with expectations. Meanwhile, inventory declined 7% Y/Y, and in-stocks improved vs. LY."

Roth MKM analysts also stated the first quarter was in line, but they noted that markdown rates re-emerged.

"With: 1) physical comparable store sales little improved throughout the boycott (1Q'24 -4.8% y/y vs. 2Q'23 - 4.3% y/y); 2) continued pressure on discretionary assortment; 3) increased competition for non-discretionary wallet; and 4) possible consumer value seeking tendencies, Target sits
unfavorably," they wrote.

"Profitability continues to improve y/y, but remains below pre-COVID levels, and the return to positive comp sales and market share gains is uncertain."

By Sam Boughedda

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