Target's quarterly earnings fell far short of expectations as the retailer coped with high freight costs, higher markdowns and lower-than- expected sales of discretionary items.
The shares fell in premarket trading.
Target reported its fiscal first quarter ended April 30, compared with Refinitiv consensus estimates.
The national retailer, known for its cheap chic brands of apparel, home decor and more, had an especially elevated sales period. A year ago, shoppers had more money in their pockets from theStimulus checks and were more optimistic about their purchases as they got their first Covid-19 vaccines.
Compared to a year ago, sales grew. In the first quarter, comparable sales grew 3.3%, a key metric that tracks sales at stores open at least 13 months and online. 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%. Traffic increased at Target's stores and website.
The company missed the mark as its gains were accompanied by high costs.
While we saw healthy top line growth in the quarter, we were less profitable than we expected to be.
Target said that the challenges were inventory that arrived too early and too late, compensation that rose at distribution centers, and a mix of merchandise sales that looked different than before.
Walmart's quarterly earnings performance mirrored Target's. Walmart missed on earnings due to higher inventory and cost pressures. Walmart's shares fell more than 10% on Tuesday and hit a low.
Target's revenue forecast calls for single-digit growth this year and beyond. It didn't give 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. The retailer earned $2.19 per share, 88 cents short of the $3.07 expected by analysts.
The adjusted earnings per share dropped 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 and Walmart differed in their descriptions of the American consumer.
Walmart has seen some customers trade down to the store brand for deli meats and buy a half-gallon of milk rather than a full one, according to CNBC. Some people are looking for new gaming consoles and patio sets.
Target CEO Brian Cornell said on a media call that the company is seeing a healthy consumer, but one who is living differently and spending differently.
In the first quarter, Cornell said toy sales grew by a high single digit as families resumed bigger children's birthday parties. He said that luggage sales were up more than 50%.
Consumers shifted their spending towards experience-based purchases like booking trips and buying gift cards for restaurants as the sales of items like TVs, kitchen appliances and bicycles dropped off.
Cornell warned that cost pressures will persist in the near term and that some are beyond the company's control. The price of gas hit a national average of $4.523 per gallon on Tuesday, according toAAA.
Target's long-term trajectory remains the same despite the fact that it will continue to invest in the business.
Target will focus on offering value, even if that means absorbing some costs, even with inflation at a nearly four-decade high, Chief Financial Officer Michael Fiddelke said on a call with reporters. He said that raising prices is the last lever we pull.
He said that they aren't about to trade that out in the current environment.
Target's shares are down about 7% so far this year. On Tuesday, the company's shares closed at $215.28.
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