Target Stock Soars On Q2 Earnings: Higher Margins, Lower Inventory And More

Target Corp TGT reported a second-quarter FY23 sales decline of 4.9% year-on-year to $24.77 billion, missing the analyst consensus of $25.18 billion.

Comparable sales declined 5.4% in the second quarter, reflecting comparable store sales declines of 4.3% and comparable digital sales declines of 10.5%.

Gross margin for the quarter expanded by 550 basis points to 27%. The gross margin rate reflected lower markdowns and other inventory-related costs, lower freight costs, retail price increases, and lower supply chain and digital fulfillment costs.

Operating income margin rate of 4.8% was more than 3 percentage points higher than last year, driven by a higher gross margin rate, and operating income for the quarter shot by 273% to $1.2 billion.

The company held $1.6 billion in cash and equivalents as of July 29, 2023. Operating cash flow for six months totaled $3.39 billion.

Adjusted EPS of $1.80 beat the analyst consensus of $1.39. Inventory at the July end was $12.7 billion, down 17% Y/Y.

The company paid dividends of $499 million in the second quarter, compared with $417 million last year.

As of Q2 end, TGT had approximately $9.7 billion remaining capacity under the prior August 2021 repurchase program.

"With the benefit of a much-leaner inventory position than a year ago, the team was able to quickly respond to rapidly-changing topline trends throughout the second-quarter, while continuing to focus on the guest experience," said Brian Cornell, chairman and CEO of Target.

Outlook: Target lowered FY23 adjusted EPS guidance from $7.75-$8.75 to $7.00-$8.00 (consensus $7.79) and expects comparable sales in a wide range around mid-single-digit decline for the remainder of the year.

It sees Q3 adjusted EPS of $1.20 - $1.60 against the Street view of $1.84; expects a mid-single-digit decline in comparable sales.

Price Action: TGT shares are trading higher by 8.44% at $135.60 in premarket on the last check Wednesday.