Shares of Target (NYSE:TGT) are down as much as 24% in premarket trading Wednesday after the retailer slashed its FY forecast for operating income margin and reported worse-than-expected Q1 adjusted EPS.
TGT reported a first-quarter adjusted EPS of $2.19, down from $3.69 in the year-ago period and below the consensus estimates of $3.06 per share. Total sales came in at $24.83 billion, up 4% YoY and just above the analyst consensus of $24.34 billion.
Comparable sales grew 3.3% in the period, beating the expected growth of 1.17%. Comparable digital sales were up 3.2% in Q1, missing the projected growth of 3.67%.
The gross margin stood at 25.7%, compared to 30% in the year-ago period and the consensus projection of 29%. The operating margin was 5.3%, while analysts were expecting 8.13%.
For the full fiscal year, Target expects an operating margin income rate “in a range centered around 6%”, down from its previous outlook of +8%.
“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” said Target CEO Brian Cornell.
For its long-term targets, the company still expects “mid-single-digit” revenue growth, and an operating margin rate of “8% or higher over time”. Q2 operating income margin rate is expected to fall in a wide range centered around its operating margin rate in the first quarter. TGT also said it still expects “low- to mid-single-digit” FY revenue growth.
Truist Securities analyst Scot Ciccarelli downgraded Target from Buy to Hold with a price target of $261.00 in response to earnings.
Quo Vadis Capital analyst John Zolidis drew parallels to Walmart's (NYSE:WMT) disappointing report yesterday.
“Both TGT and WMT beat on the top line but lowered outlooks on unexpected expenses and unfavorable gross margins when comparing to last year's stimulus-driven spending. The implications for retailers that have yet to report are not promising. Yet, some names that have updated the Street more recently have done fine. HD & LOW didn't have these issues. A few names that reported with March quarters (TSCO comes to mind) also did not see expenses dramatically exceed guidance,” Zolidis told clients in a note.
BMO analyst Kelly Bania said TGT delivered “solid Q1 comps and traffic growth but significantly weaker GM% and guided full year EBIT margins back to 6% (2019 levels) down from 8%+ prior, suggesting EPS needs to come down by about $4 in our opinion.”
By Senad Karaahmetovic