Target Makes An Earnings Turnaround But Slashes Outlook

In a week of retail earnings reports, Target Corporation TGT managed to beat second-quarter earnings estimates but its revenue fell short of Wall Street's expectations despite its efforts to compete with Amazon.com Inc AMZN and its Prime Day in July. Although the retailer slashed its full-year outlook as it continues to fight for price-conscious shoppers, its shares did surge upon the report. Also today, The TJX Companies TJX topped expectations for both its revenue and profits.

Second Quarter Highlights

For the quarter ended on July 29th, revenue fell about 5% as it amounted to $24.77 billion, coming in short of the expected $25.16 billion. Net income rose as it rebounded from 2022's comparable quarter when it was $183 million due to an inventory glut to $835 million, with earnings per share amounting to $1.80. Comparable sales that cover both online sales and physical stores that were open for at least 13 months, dropped 5.4%, while analysts expected a less intense drop of 3.7%. Looked at independently, comparable sales dropped 4.3% while online ones fell even more, 10.5% to be exact. Sales weakened during the second half of May and in June but they did recover in July as Target succeeded to compete with Amazon and its Prime Day with The Fourth of July sales as well as Target Circle Week. But Amazon had its biggest Prime Day to date with July sales fueling both its quarterly results and lifting its guidance. But the all-mighty Amazon also reported its consumers purchased up across most categories.

Gloomier Than Expected Guidance

Despite views like the one from Home Depot HD that finds inflation is cooling, the big-box retailer offered a gloomier outlook as it slashed both its profit and revenue guidance. For the full fiscal year, Target expects comparable sales to drop in mid-single-digits and earnings per share to be in the range between $7 and $8. It lowered its prior outlook where it expected comparable sales to decline in low single-digit decline or even rise in low single-digits. CEO Brian Cornell noted that although sales and store traffic improved in July, the fall comes with concerns of rising interest rates and return of student loan payments, with consumers still being challenged by higher prices. As for the undergoing, third quarter, Target guided for earnings in the range between $1.20 and $1.60 per share.

Covid Days Are Long Gone

The bottom line is that Target again wasn't so successful in luring price-conscious shoppers buy more than bare necessities, failing to bounce back from a disappointing year. The enormous sales gains during the pandemic are long gone and Target now needs to find a way to attract consumers who are prioritizing needs over wants such as the ones that Target is mainly offering. While more than half of annual revenue that Walmart makes is made of groceries, they only make 20% of Target's annual revenue despite its efforts over the last year to increase this category. But despite lagging sales, profits did rebound and some segments like beauty drove revenue as Ulta Beauty doubled compared to last year's comparable quarter and other beauty items experienced a revenue growth in double digits. Chief Growth Officer Christina Hennington stated that Target is focused on playing the long game by focusing on things that made Target Target.

Meanwhile, Walmart is due to report its quarterly performance tomorrow. With Walmart stock hitting new highs upon the report, investors are waiting to see if its automation efforts fueled profits. Expectations are certainly high as Walmart is more in the ‘needs' business unlike TJX and Target with its earnings having accelerated over the past three quarters.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.