Target on Wednesday reported quarterly earnings that fell far short of Wall Street’s expectations, as the retailer coped with pricey freight costs, higher markdowns and lower-than-expected sales of discretionary items from TVs to bicycles.
Shares fell about 16% in premarket trading.
Here’s what Target reported for the fiscal first quarter ended April 30, compared with Refinitiv consensus estimates:
- Earnings per share: $2.19 adjusted vs. $3.07 expected
- Revenue: $25.17 billion vs. $24.49 billion expected
The national retailer, known for its cheap chic brands of apparel, home decor and more, lapped an especially elevated sales period. A year ago, shoppers had extra dollars in their pockets from stimulus checks and reflected a sense of optimism with their purchases as they got their first Covid-19 vaccines.
Sales did grow compared with that year-ago period. Comparable sales, a key metric that tracks sales at stores open at least 13 months and online, grew 3.3% in the first quarter. That is on top of a 23% increase in comparable sales in the year-ago quarter and it is higher than Wall Street’s projections for 0.8%, according to StreetAccount estimates. At Target’s stores and its website, traffic rose 3.9%.
Even so, CEO Brian Cornell said the company missed the mark as its gains were “accompanied by unusually high costs.”
“While we saw healthy top line growth in the quarter, we were less profitable than we expected to be or intend to be over time,” he said on a call with reporters.
Among the challenges, Target said profits got hit by inventory that arrived too early and too late, compensation and headcount that rose at distribution centers, and a mix of merchandise sales that looked different than before. Target’s results mirrored Walmart‘s quarterly earnings performance. Walmart reported Tuesday that it also missed on earnings, also citing higher inventory and numerous cost pressures.
Target reiterated its revenue forecast, which calls for mid single-digit growth this year and beyond. It did not provide an earnings per share estimate.
Target’s net income in the quarter fell to $1.01 billion, or $2.16 per share, from $2.1 billion, or $4.17 per share, a year earlier. Excluding items, the retailer earned $2.19 per share, 88 cents short of the $3.07 expected by analysts surveyed by Refinitiv.
Those adjusted earnings per share dropped sharply – down nearly 41% from the year-ago period.
Total revenue rose to $25.17 billion from $24.20 billion a year ago, above analysts’ expectations of $24.49 billion.
Target vs. Walmart
While Target and Walmart both missed profit expectations by wide margins, they diverged in descriptions of the American consumer.
Walmart Chief Financial Officer Brett Biggs told CNBC that the big-box retailer has seen some budget-strapped customers trade down to the store brand for deli meats and buy a half-gallon of milk rather than a full one. Some others, he said, are seeking out new gaming consoles and patio sets.
Target CEO Brian Cornell,…
Read More: Target (TGT) Q1 2022 earnings