Target Stands By Its Annual Outlook

Posts Higher-Than-Expected Profit in First Quarter
A Target store in Chicago
A Target store in Chicago. Adjusted earnings totaled $2.05 a share during Q1. (Daniel Acker/Bloomberg News)

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Target Corp. stood by its annual outlook after posting higher-than-expected profit in the first quarter, even as “softening sales trends” threaten to crimp short-term results.

Robust sales in food, beauty products and household essentials are offsetting flagging demand for discretionary goods, Target said May 17. But earnings in the current quarter will be no more than $1.70 a share, the retailer predicted. That would trail the $1.91 average of analyst estimates compiled by Bloomberg.

The mixed picture underscores Target’s push to regain its footing after a pandemic-era sales boom ground to a halt last year, leaving the company with stockpiles of unwanted goods. While that problem has been largely resolved, Target pointed to a worsening blow from organized retail theft, which is increasingly driving “shrink” — the industry term for when a store has fewer items in stock than in its inventory records.

The pressure from shrink is expected to erode profit by an additional $500 million compared with last year, when Target was already contending with rising theft.

“We are making significant investments in strategies to prevent this from happening in our stores and protect our guests and our team,” Chief Executive Officer Brian Cornell said in the statement. “We’re also focused on managing the financial impact on our business so we can continue to keep our stores open.”

Target’s sober second-quarter outlook will do little to assuage worries about weakening U.S. consumer spending, said Adam Crisafulli, an analyst at Vital Knowledge. Home Depot Inc. cut its annual forecast May 16, citing a consumer pullback.

Chart comparing Target performance to overall market

“Target could have been worse, but it’s still not good,” Crisafulli said in a note to clients. “Whatever consumer concerns were engendered by Home Depot will probably only be exacerbated by Target.”

Walmart Inc., the largest U.S. retailer, reports first-quarter results May 18 ahead of the market open.

TJX Cos. reported comparable sales May 17 that were slightly below analysts estimates, but the off-price retailer raised earnings guidance for the full year and cited an increase in overall customer traffic in the first quarter. That’s a sign shoppers are trading down in search of lower prices.

While Target’s profit forecast for the second quarter fell short of Wall Street estimates, the first-quarter performance exceeded them. Adjusted earnings totaled $2.05 a share during the three months ending April 29, topping the $1.77 projected by analysts, as costs eased in areas such as transportation. Target also got a boost from higher prices, Chief Financial Officer Michael Fiddelke said on an earnings call.

Revenue was little changed at $25.3 billion. Comparable sales, a key measure for retailers, were flat during the first quarter, trailing estimates of a 1% gain. Customer traffic rose while the average transaction amount fell. Comparable sales at brick-and-mortar stores rose, in contrast with a decline in sales originating online.


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Shopper demand was strongest in February, then began softening in March and weakened further near the end of April, Target Chief Growth Officer Christina Hennington said on the call. Sales declined in such discretionary categories as apparel, home goods and hardlines, which includes electronics, toys and sporting goods.

For comparable sales in the second quarter, the Minneapolis-based company said it’s planning for a wide range of outcomes “centered around a low-single-digit decline.” Analysts had been predicting an increase of about 0.4% before the earnings report.

Still, Target maintained a relatively upbeat outlook for the second half of the year, betting that it’s well positioned for back-to-school demand and the holidays.

“We acknowledge that there’s a lot of volatility,” Hennington said. “But our expectation is that some the strengths of Target really amplify in the back half of the year.”

— With assistance from Olivia Rockeman.

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