Target (NYSE:TGT) reported a mixed set of Q1 results and a weaker-than-expected outlook for the second quarter and full year.
Shares whipsawed between positive and negative territory as investors digested the earnings report. As of 08:15 ET (12:15 GMT), Target stock was flat.
Target posted a profit per share of $2.05 on revenue of $25.32 billion. Analysts were looking for EPS of $1.79 on sales of $25.37B. Net income fell to $950 million from the $1.01B reported for the year-ago period.
"We came into the year clear-eyed about the challenges consumers are facing, and we were determined to build on the trust we've established with our guests,” Brian Cornell, chair and CEO of Target Corporation, said.
Comparable sales were flat in Q1 while analysts were looking for 0.2% YoY growth. Traffic jumped 1%.
Importantly, inventory fell 16% year-over-year, fueled by a 25% reduction in discretionary merchandise categories.
“The consumer is under pressure,” chief growth officer Christina Hennington said on a call with reporters. “The consistent inflation, the running out of savings as well as just economic uncertainty in general is having an impact on their choices and they’re making tradeoffs.”
For this quarter, Target sees EPS at $1.50 (up or down 20 cents), missing the $1.93 consensus.
“Based on softening sales trends in the first quarter, the Company is planning for a wide range of sales outcomes in the second quarter, centered around a low-single-digit decline in comparable sales,” the company said.
For FY24, the profit is seen at $8.25 per share (up or down 50 cents), again missing the $8.44 expectations. The comparable sales outlook is also maintained as Target continues to expect “a wide range from a low-single-digit decline to a low-single-digit increase.”
“As we look ahead, we now expect shrink will reduce this year's profitability by more than $500 million compared with last year,” Cornell added.
Stifel analysts said the results and guidance were "solid" given "a muted discretionary spending environment."
"We anticipate F2023 consensus EPS and TGT shares are unlikely to move materially."
Goldman Sachs analysts weighed in more positively on the report.
"We expect the stock to track higher given the 1Q beat with a solid improvement in the operating margin and its inventory position. That said, we acknowledge likely investor concerns related to the lower-than-expected 2Q guide and higher shrink, although we note FY23 guidance was reiterated."