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Target Corporation (TGT - Free Report) came up with second-quarter fiscal 2023 results, wherein the top line missed the Zacks Consensus Estimate, while the bottom line beat the same. Although total revenues declined year over year, earnings showed a significant improvement from the year-ago period. The quarter also witnessed a decrease in comparable sales. Target witnessed continued demand in frequency categories but a pullback in discretionary categories.
Given recent sales trends, management has adopted a cautious stance regarding its sales outlook and lowered the fiscal 2023 earnings view.
Sales & Earnings Picture
Target reported adjusted earnings of $1.80 per share, which surpassed the Zacks Consensus Estimate of $1.41. Markedly, the bottom line meaningfully increased from the earnings of 39 cents reported in the year-ago period.
The big-box retailer generated total revenues of $24,773 million, which decreased 4.9% year over year. The metric also fell short of the Zacks Consensus Estimate of $25,256 million. We note that sales fell 4.9% to $24,384 million, while other revenues rose 1.3% to $389 million.
Target Corporation Price, Consensus and EPS Surprise
Meanwhile, comparable sales decreased 5.4% in the quarter. The metric reflected a comparable store sales decline of 4.3% and a comparable digital sales decline of 10.5%. We had expected a comparable sales drop of 2.1% and a comparable store sales decline of 1.4% for the quarter under discussion.
Margins
The gross margin expanded 550 basis points to 27%, reflecting lower markdowns and other inventory-related costs, the benefits of lower freight costs, retail price increases, and lower supply chain and digital fulfillment costs. These were partly offset by higher inventory shrink. Meanwhile, the operating margin increased to 4.8% from 1.2% in the year-ago period.
We had expected year-over-year improvements of 410 basis points and 280 basis points in the gross margin and operating margin rates, respectively, for the quarter under review.
Other Financial Details
This Zacks Rank #4 (Sell) company ended the quarter with cash and cash equivalents of $1,617 million, long-term debt and other borrowings of $14,926 million and shareholders’ investment of $11,990 million. During the quarter, Target paid out dividends of $499 million.
Target did not buy back any shares during the quarter under review. At the end of the quarter, the company had about $9.7 billion remaining under the repurchase program approved in August 2021.
Outlook
Target envisions third-quarter fiscal 2023 comparable sales to decline in the mid-single digits. For the quarter, the company expects both GAAP and adjusted earnings in the band of $1.20-$1.60 per share compared with $1.54 reported in the year-ago period.
For fiscal 2023, management foresees comparable sales in a wide range around a mid-single-digit decline for the remainder of the year. It now envisions both GAAP and adjusted earnings between $7.00 and $8.00 per share, down from the prior projected range of $7.75-$8.75 per share.
We note that shares of Target have fallen 16.1% year to date against the industry’s rise of 4.2%.
Grocery Outlet, the extreme value retailer of quality, name-brand consumables and fresh products, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 12.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Grocery Outlet’s current financial-year sales and earnings suggests growth of 10.6% and 2.9%, respectively, from the year-ago reported numbers. GO has a trailing four-quarter earnings surprise of 14.3%, on average.
Ross Stores, which operates off-price retail apparel and home fashion stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 10.5%.
The Zacks Consensus Estimate for Ross Stores’ current financial-year sales and earnings suggests growth of 4.7% and 13.5%, respectively, from the year-ago reported numbers. ROST has a trailing four-quarter earnings surprise of 11.5%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 6.6%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.3% from the year-ago period. WMT has a trailing four-quarter earnings surprise of 12%, on average.
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Target (TGT) Q2 Earnings Beat Estimates, FY23 View Lowered
Target Corporation (TGT - Free Report) came up with second-quarter fiscal 2023 results, wherein the top line missed the Zacks Consensus Estimate, while the bottom line beat the same. Although total revenues declined year over year, earnings showed a significant improvement from the year-ago period. The quarter also witnessed a decrease in comparable sales. Target witnessed continued demand in frequency categories but a pullback in discretionary categories.
Given recent sales trends, management has adopted a cautious stance regarding its sales outlook and lowered the fiscal 2023 earnings view.
Sales & Earnings Picture
Target reported adjusted earnings of $1.80 per share, which surpassed the Zacks Consensus Estimate of $1.41. Markedly, the bottom line meaningfully increased from the earnings of 39 cents reported in the year-ago period.
The big-box retailer generated total revenues of $24,773 million, which decreased 4.9% year over year. The metric also fell short of the Zacks Consensus Estimate of $25,256 million. We note that sales fell 4.9% to $24,384 million, while other revenues rose 1.3% to $389 million.
Target Corporation Price, Consensus and EPS Surprise
Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote
Meanwhile, comparable sales decreased 5.4% in the quarter. The metric reflected a comparable store sales decline of 4.3% and a comparable digital sales decline of 10.5%. We had expected a comparable sales drop of 2.1% and a comparable store sales decline of 1.4% for the quarter under discussion.
Margins
The gross margin expanded 550 basis points to 27%, reflecting lower markdowns and other inventory-related costs, the benefits of lower freight costs, retail price increases, and lower supply chain and digital fulfillment costs. These were partly offset by higher inventory shrink. Meanwhile, the operating margin increased to 4.8% from 1.2% in the year-ago period.
We had expected year-over-year improvements of 410 basis points and 280 basis points in the gross margin and operating margin rates, respectively, for the quarter under review.
Other Financial Details
This Zacks Rank #4 (Sell) company ended the quarter with cash and cash equivalents of $1,617 million, long-term debt and other borrowings of $14,926 million and shareholders’ investment of $11,990 million. During the quarter, Target paid out dividends of $499 million.
Target did not buy back any shares during the quarter under review. At the end of the quarter, the company had about $9.7 billion remaining under the repurchase program approved in August 2021.
Outlook
Target envisions third-quarter fiscal 2023 comparable sales to decline in the mid-single digits. For the quarter, the company expects both GAAP and adjusted earnings in the band of $1.20-$1.60 per share compared with $1.54 reported in the year-ago period.
For fiscal 2023, management foresees comparable sales in a wide range around a mid-single-digit decline for the remainder of the year. It now envisions both GAAP and adjusted earnings between $7.00 and $8.00 per share, down from the prior projected range of $7.75-$8.75 per share.
We note that shares of Target have fallen 16.1% year to date against the industry’s rise of 4.2%.
3 Picks You Can't Miss Out On
Here we have highlighted three better-ranked stocks, namely Grocery Outlet (GO - Free Report) , Ross Stores (ROST - Free Report) and Walmart (WMT - Free Report) .
Grocery Outlet, the extreme value retailer of quality, name-brand consumables and fresh products, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 12.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Grocery Outlet’s current financial-year sales and earnings suggests growth of 10.6% and 2.9%, respectively, from the year-ago reported numbers. GO has a trailing four-quarter earnings surprise of 14.3%, on average.
Ross Stores, which operates off-price retail apparel and home fashion stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 10.5%.
The Zacks Consensus Estimate for Ross Stores’ current financial-year sales and earnings suggests growth of 4.7% and 13.5%, respectively, from the year-ago reported numbers. ROST has a trailing four-quarter earnings surprise of 11.5%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 6.6%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.3% from the year-ago period. WMT has a trailing four-quarter earnings surprise of 12%, on average.