By Senad Karaahmetovic
Target (NYSE:TGT) delivered better-than-expected earnings for the fourth quarter but warned about a slowdown as consumers continue to focus on necessities.
Shares are trading about 1.5% higher in pre-market Tuesday.
Target posted earnings per share of $1.89 on revenue of $31.4 billion, beating the average analyst estimate for earnings of $1.40 per share on revenue of $30.65B. Overall, sales rose 1.2% compared to the year-ago period while comparable sales grew 0.7%, better than the expected decline of 1.7%.
“This performance highlights the benefit of our multi-category merchandise assortment, which drives relevance with our guests in any environment, and is a key reason we grew traffic every quarter last year," said Brian Cornell, chairman and chief executive officer of Target Corporation.
Target reported a gross margin contraction of 300 basis points compared to the year-ago period due to higher costs. Analysts were looking for a gross margin of 23.5%, above the reported 22.7%.
The retailer also said that customer transactions grew 0.7% while the average transaction amount was flat for the fourth quarter. Analysts were expecting a decline of nearly 2%. Inventory at the end of the quarter was 3% lower than in 2021, Target said.
On a more negative note, Target offered a more conservative outlook. For this quarter, Target guided to EPS of $1.70 (up or down 20c), a substantial miss relative to the consensus of $2.14. The company sees its comparable sales between a low-single-digit decline to a low-single-digit increase.
For FY23, Target sees EPS at $8.25 (up or down 50c) while analysts were looking for $9.23. Comparable sales are expected in a “wide range” from a low-single-digit decline to a low-single-digit increase.
“We're planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating environment,” Cornell added.
Target said it didn’t buy any of its shares in Q4.
Vital Knowledge analysts said that the offered forecast “is obviously disappointing,” although “there are some bright spots, including the healthy FQ4 results, the progress on inventory, and the F24 op. margin outlook.”
Goldman Sachs analysts also highlighted soft guidance.
"We expect the stock to trade higher given solid 4Q results, clean inventory, and a line of sight to achieving 6% margins over the medium term. While FY23 EPS guidance came in below consensus, we believe it is likely conservative given the macro uncertainty. Additionally, several investors were anticipating a lower guide and waiting for the clarity before reengaging with the stock, based on our conversations," the analysts commented.