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Target Q2 Earnings Miss Estimates, Comparable Sales Decline Y/Y
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Key Takeaways
Target reported Q2 revenues of $25.2B, topping estimates but down 0.9% y/y.
Adjusted EPS came in at $2.05, missing forecasts and falling 20.2% from last year.
Comparable sales decreased 1.9%, with stronger digital growth offset by weaker store traffic.
Target Corporation (TGT - Free Report) reported second-quarter fiscal 2025 results, with revenues and earnings declining from the prior-year period. The top line surpassed the Zacks Consensus Estimate, while the bottom line fell short. Also, the company witnessed a decline in comparable sales.
While results reflected ongoing headwinds in consumer demand and operational pressures, Target delivered sequential improvements, aided by stronger store traffic, disciplined expense management and continued digital momentum.
Digital comparable sales advanced 4.3% year over year, driven by over 25% growth in same-day delivery through Target Circle 360 and sustained momentum in Drive Up services.
Target Corporation Price, Consensus and EPS Surprise
Target reported adjusted earnings of $2.05 per share, which missed the Zacks Consensus Estimate of $2.09 and declined 20.2% from $2.57 in the year-ago period.
The big-box retailer generated total revenues of $25,211 million, which topped the Zacks Consensus Estimate of $24,911 million. The metric fell 0.9% on a year-over-year basis. We note that merchandise sales declined 1.2% to $24,719 million, while non-merchandise sales grew 14.2%, supported by Roundel advertising, membership and marketplace revenues.
Meanwhile, comparable sales decreased 1.9%, following a 3.8% decline in the preceding quarter. The metric reflected a decline of 3.2% in comparable store sales but an increase of 4.3% in comparable digital sales. We had projected a decline of 3.3% in comparable sales.
Traffic or the number of transactions dipped 1.3%, while the average transaction amount slid 0.6%. We had expected the average transaction amount to decline 2% for the quarter under review.
The gross margin contracted 100 basis points to 29%, pressured by higher markdown activity, purchase order cancellation costs and category mix, partially offset by reduced inventory shrink and increased advertising and non-merchandise revenues. The operating margin shrank 120 basis points to 5.2% from 6.4% in the corresponding period last year. We had expected a 110-basis-point contraction in the operating margin.
TGT Stock's Past 3-Month Performance
Image Source: Zacks Investment Research
Target’s Financial Health Snapshot
Target ended the second quarter with cash and cash equivalents of $4,341 million, long-term debt and other borrowings of $15,320 million, and shareholders’ investment of $15,420 million. During the quarter, Target paid out dividends of $509 million.
The company did not repurchase any shares during the quarter. At the end of the period, Target had about $8.4 billion remaining under the repurchase program approved in August 2021.
A Sneak Peek Into TGT’s FY25 Outlook
This Zacks Rank #3 (Hold) company reaffirmed its fiscal 2025 guidance. It continues to expect a low-single-digit decline in sales. Adjusted earnings are projected in the band of $7-$9 per share, while GAAP earnings per share are anticipated in the range of $8-$10.
Shares of Target have gained 13.3% in the past three months against the industry’s decline of 0.8%.
The Zacks Consensus Estimate for Kroger’s current financial-year sales and earnings implies growth of 1.1% and 6.5%, respectively, from the year-ago reported numbers.
Grocery Outlet (GO - Free Report) , an extreme value retailer of quality, name-brand consumables and fresh products, carries a Zacks Rank #2 at present. GO has a trailing four-quarter earnings surprise of 28.2%, on average.
The Zacks Consensus Estimate for Grocery Outlet’s current financial-year sales suggests growth of around 8.2% from the year-ago reported numbers.
Ollie's Bargain Outlet Holdings (OLLI - Free Report) is a value retailer of brand-name merchandise at drastically reduced prices and currently carries a Zacks Rank #2. OLLI has a trailing four-quarter earnings surprise of 2%, on average.
The Zacks Consensus Estimate for Ollie's current fiscal-year sales and earnings implies growth of 14.2% and 14%, respectively, from the year-ago reported numbers.
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Target Q2 Earnings Miss Estimates, Comparable Sales Decline Y/Y
Key Takeaways
Target Corporation (TGT - Free Report) reported second-quarter fiscal 2025 results, with revenues and earnings declining from the prior-year period. The top line surpassed the Zacks Consensus Estimate, while the bottom line fell short. Also, the company witnessed a decline in comparable sales.
While results reflected ongoing headwinds in consumer demand and operational pressures, Target delivered sequential improvements, aided by stronger store traffic, disciplined expense management and continued digital momentum.
Digital comparable sales advanced 4.3% year over year, driven by over 25% growth in same-day delivery through Target Circle 360 and sustained momentum in Drive Up services.
Target Corporation Price, Consensus and EPS Surprise
Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote
Target’s Quarterly Performance: Key Metrics & Insights
Target reported adjusted earnings of $2.05 per share, which missed the Zacks Consensus Estimate of $2.09 and declined 20.2% from $2.57 in the year-ago period.
The big-box retailer generated total revenues of $25,211 million, which topped the Zacks Consensus Estimate of $24,911 million. The metric fell 0.9% on a year-over-year basis. We note that merchandise sales declined 1.2% to $24,719 million, while non-merchandise sales grew 14.2%, supported by Roundel advertising, membership and marketplace revenues.
Meanwhile, comparable sales decreased 1.9%, following a 3.8% decline in the preceding quarter. The metric reflected a decline of 3.2% in comparable store sales but an increase of 4.3% in comparable digital sales. We had projected a decline of 3.3% in comparable sales.
Traffic or the number of transactions dipped 1.3%, while the average transaction amount slid 0.6%. We had expected the average transaction amount to decline 2% for the quarter under review.
The gross margin contracted 100 basis points to 29%, pressured by higher markdown activity, purchase order cancellation costs and category mix, partially offset by reduced inventory shrink and increased advertising and non-merchandise revenues. The operating margin shrank 120 basis points to 5.2% from 6.4% in the corresponding period last year. We had expected a 110-basis-point contraction in the operating margin.
TGT Stock's Past 3-Month Performance
Image Source: Zacks Investment Research
Target’s Financial Health Snapshot
Target ended the second quarter with cash and cash equivalents of $4,341 million, long-term debt and other borrowings of $15,320 million, and shareholders’ investment of $15,420 million. During the quarter, Target paid out dividends of $509 million.
The company did not repurchase any shares during the quarter. At the end of the period, Target had about $8.4 billion remaining under the repurchase program approved in August 2021.
A Sneak Peek Into TGT’s FY25 Outlook
This Zacks Rank #3 (Hold) company reaffirmed its fiscal 2025 guidance. It continues to expect a low-single-digit decline in sales. Adjusted earnings are projected in the band of $7-$9 per share, while GAAP earnings per share are anticipated in the range of $8-$10.
Shares of Target have gained 13.3% in the past three months against the industry’s decline of 0.8%.
Don’t Miss These Solid Bets
The Kroger Co. (KR - Free Report) operates in the thin-margin grocery industry, and currently carries a Zacks Rank #2 (Buy). KR has a trailing four-quarter earnings surprise of 1.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Kroger’s current financial-year sales and earnings implies growth of 1.1% and 6.5%, respectively, from the year-ago reported numbers.
Grocery Outlet (GO - Free Report) , an extreme value retailer of quality, name-brand consumables and fresh products, carries a Zacks Rank #2 at present. GO has a trailing four-quarter earnings surprise of 28.2%, on average.
The Zacks Consensus Estimate for Grocery Outlet’s current financial-year sales suggests growth of around 8.2% from the year-ago reported numbers.
Ollie's Bargain Outlet Holdings (OLLI - Free Report) is a value retailer of brand-name merchandise at drastically reduced prices and currently carries a Zacks Rank #2. OLLI has a trailing four-quarter earnings surprise of 2%, on average.
The Zacks Consensus Estimate for Ollie's current fiscal-year sales and earnings implies growth of 14.2% and 14%, respectively, from the year-ago reported numbers.