Target issues weak forecast as shoppers pull back

Target on Wednesday said it expects consumer caution to persist after it reported quarterly earnings that missed Wall Street estimates and issued a forecast for the current quarter that was also largely below expectations.

Shares fell 8% premarket after it posted adjusted earnings per share of $2.03, 3 cents below analysts’ expectations, according to LSEG data. The stock has lost more than 40% of its value since touching an all-time high in Nov. 2021.

Its disappointing earnings and outlook stood in contrast to larger peer Walmart, which last week reported better-than-expected results and raised its annual outlook as shoppers prioritized food and essentials like toilet paper and detergent.

“This performance is significantly worse than the overall market, which underlines that Target is losing share,” said Neil Saunders, Managing Director of GlobalData. “All in all, the picture painted by today’s figures is of a business that has run out of steam.”

Companies ranging from McDonald’s to PepsiCo have flagged in recent weeks the strain that Americans are under due to sticky food inflation and the rising costs of eating out, rents and mortgages.

“We remain cautious in our near-term growth outlook and we expect consumer discretionary trends to remain pressured in the short term,” Christina Hennington, Target’s chief growth officer, said on a media call.

Higher interest rates, economic uncertainty and higher credit card balances have kept consumers concerned, she added, noting that consumer confidence took a meaningful dip in April.

Shoppers are delaying their purchases to take advantage of deals, while also spending more time on out-of-home activities, Target’s CEO Brian Cornell said during a media call. Despite ongoing inflation in food and essentials, spending in these categories remained resilient, which Cornell attributed to a strong labor market.

‘LASER FOCUSED’ ON GROWTH

Target said it was “laser-focused” on getting back to sales growth in the current quarter, banking much of its hopes on sales events planned for Memorial Day and the July 4th weekend as well as price cuts on thousands of items this year.

On Monday, the company cut prices on 1,500 products with plans eventually lower prices on 5,000 grocery items over this summer.

This followed its move in January, where it introduced “dealworthy,” a new line of 400 products starting below $1 and most products under $10.

“What is really disappointing if you look past this quarter, is that second-quarter guidance. A lot of people had a lot of higher expectations,” said Christian Greiner, senior portfolio manager at F/m Investments, which holds Target as part of its large-cap value dividend strategy.

Target expects comparable sales in the second quarter will recover from its four straight quarterly declines, being flat to up 2%. It expects adjusted earnings of $1.95 to $2.35 per share. Analysts on average had anticipated a comparable sales increase of 1.39% and profit of $2.19 per share.

In the first quarter ended May 4, comparable sales declined 3.7%, in line with expectations. Strong beauty sales partially offset a slowdown in discretionary items such as home entertainment, furniture and appliances. Apparel sales were a bright spot, it said.

The company maintained its full-year target, with comparable sales seen flat to up 2%, and earnings of $8.60 to $9.60 per share.

Telsey Advisory Group analyst Joseph Feldman said nearly all retailers, not just Target and Walmart, have painted a picture that the second half will improve.

“But it’s been a little, you know, slower than we initially anticipated.”