Q1 2024 Earnings for Target (TGT)

Target reported a decrease in sales compared to the previous year and fell short of Wall Street’s earnings predictions on Wednesday. This occurred as customers, weary of high costs, purchased fewer non-essential items and groceries.

The revenue of the Minneapolis-based discount store for the fiscal first quarter nearly met expectations.

CEO Brian Cornell shared that the company’s performance indicates “ongoing mild trends in discretionary categories” during a call with journalists.

He highlighted the company’s intent to provide value to its customers and to communicate this effectively through strategies such as its revamped loyalty program. In addition to this, Target announced a reduction in the prices of numerous everyday items, including milk, bread, paper towels, and diapers on Monday.

Target reiterated its previous full-year forecast, predicting that comparable sales will range from being stable to increasing by 2% and that adjusted earnings per share will be between $8.60 and $9.60. Store executives stated that the retailer is set to return to sales growth in the second quarter.

The company’s shares had dropped by over 7% early on Wednesday.

Here’s a comparison of what Target reported for the three-month period ending on May 4 and what Wall Street had anticipated, based on a survey of analysts by LSEG:

• Earnings per share: $2.03 compared to the expected $2.06

• Revenue: $24.53 billion compared to the expected $24.52 billion

This is the first time Target has failed to meet earnings expectations since November 2022.

The net income for the period decreased by less than 1% to $942 million, or $2.03 per share, from $950 million, or $2.05 per share, in the same quarter the previous year.

The total revenue saw a decrease of around 3% from $25.32 billion the previous year.

Target, like other retailers, has been trying to attract consumers who have been spending less freely on clothing, home goods, and other non-essential items. The discount retailer has been particularly affected by this as it relies less on food sales than its competitor Walmart, which gets about 60% of its U.S. sales from groceries, compared to roughly 20% at Target.

There was a slight decrease in inflation in April, but the consumer price index still rose 3.4% on a year-over-year basis. This key measure determines the cost of goods and services at the cash register.

Target acknowledged this challenge by reducing prices this week.

The company is also competing with other discounters, including Walmart, Aldi, and Lidl, that are targeting price-conscious shoppers.

For instance, Walmart has gained market share from higher-income shoppers and recently launched a premium food brand with most items priced under $5. The company’s CFO, John David Rainey, also noted last week that customers are opting for cheaper meals from its grocery aisles due to the increasing prices of fast food.

During Target’s first quarter, there was a 1.9% decrease in customer traffic, which includes online and store visits. The average spend per visit also dropped by 1.9%.

There was a 1.4% increase in digital sales, marking the first rise in more than a year.

Comparable sales, also known as same-store sales, fell by 3.7% as customers purchased beauty items but fewer of other non-essential categories such as clothing and home. This decrease met analysts’ expectations, according to StreetAccount.

Sales in frequency categories, such as food and drink and beauty and household essentials, saw a low single-digit decrease, as stated by Chief Growth Officer Christina Hennington during a call with journalists.

However, Hennington noted that compared to recent quarters, Target is observing some positive trends. Sales of clothing improved by almost 4 percentage points from the fiscal fourth quarter as customers purchased outfits for spring.

She shared that Target’s limited-time collection with Diane von Furstenberg resulted in millions of unique visits to the retailer’s website each day of the launch week and increased the size of customers’ baskets by around 15% on average.

Other exclusive items also drove spending, she said. These included Target’s collaboration with the tennis and lifestyle brand Prince to sell pickleball gear and Taylor Swift’s latest album, which Target capitalized on with in-store events and photo opportunities.

Target’s shares closed at $155.78 on Tuesday, giving it a market value of $72.07 billion. As of Tuesday’s close, the company’s shares have increased by about 9% so far this year, trailing the S&P 500’s nearly 12% gains.

Contribution to this report was made by CNBC’s Robert Hum.