Target's Q1 Earnings: Falling Revenues and Comp Sales Weigh On Retailer, But Inventories Fall By 80%

Target Corp TGT shares are trading lower after the company reported a lower-than-expected first-quarter FY24 adjusted EPS.

The company reported a first-quarter FY24 sales decline of 3.1% year-on-year to $24.531 billion, beating the analyst consensus estimate of $24.521 billion.

Comparable sales declined 3.7% in the first quarter, reflecting comparable store sales declines of 4.8% partially offset by a comparable digital sales increase of 1.4%.

Gross margin for the quarter expanded by 140 basis points to 27.7%, reflecting the net impact of merchandising activities, including cost improvements that more than offset higher promotional markdown rates, combined with favorable category mix and lower book to physical inventory adjustments.

Operating income margin rate of 5.3% was 10 basis points higher than last year, and the operating income for the quarter fell 2.4% to $1.3 billion.

The company held $3.6 billion in cash and equivalents as of May 4. Operating cash flow for three months totaled $1.1 billion.

Adjusted EPS of $2.03 missed the analyst consensus estimate of $2.06.

Inventory as of May 4 was $156 million, compared to $883 million last year.

The company paid dividends of $508 million in the first quarter, compared with $497 million last year.

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

Outlook: Target sees second-quarter adjusted EPS of $1.95 – $2.35 against the Street view of $2.19. It expects 0% – 2% increase in comparable sales.

Target continues to expect FY24 adjusted EPS of $8.60 – $9.60 versus an estimate of $9.43. It sees 0% – 2% increase in comparable sales.

Price Action: TGT shares are trading lower by 7.82% at $143.60 in premarket at the last check Wednesday.

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