Major retailer Target Corporation (NYSE: TGT) released its earnings report in the middle of August to disappointing results. After a solid gain the morning of the release, Target slashed its guidance for the second half of the year, dragging share value with it.
A Big Earnings Miss
Before releasing this new earnings report, Target's previous Earnings per Share (EPS) for the quarter was estimated to be $0.79 on $26.0B in sales. Unfortunately, the big box retailer only earned a measly $0.39 per share, despite satisfying the 3 percent sales growth anticipated to reach $26.0B. While same-store sales did grow 2.6 percent, and their operating income margin was 1.2 percent, this EPS decline represents a year-over-year drop of 89 percent.
That said, Target is holding on its full-year guidance, even as they did, admittedly downgrade their Q2 guidance in June.
Solid Quarterly Growth...Until the New Year
Target's struggles are relatively new as their earnings for most of last year demonstrate the plunge only began in 2022. For example, Target's estimated EPS range for the second quarter of 2021 was 3.11 to 4.25 with a consensus estimate of 3.51. Their actual reported earnings of 3.64 beat this estimate. In the third quarter, Target's 3.03 reported earnings beat the consensus estimate again.
And then, the 3.19 they reported in Q4 beat not only the consensus estimate, but the whole range as well. As a matter of fact, Target had seven straight quarters of impressive profit growth.
Unfortunately, Target could not maintain this momentum in the first quarter of 2022. Q1 had an estimated range of $2.55 to $3.66 with consensus estimate of $3.07, but the actual reported earnings was a paltry $2.19. And, again, the most recent report shows that Target once again failed to reach even the low end of the range in Q2. For the second quarter, the estimated range was $0.61 to $2.80 with a consensus estimate of $0.79; and the actual reported earnings was only $0.39.
A Better Annual Outlook
Overall, the annual EPS numbers are only slightly better, accounting perhaps for persistent, if not petulant, numbers. For example, the EPS range for 2018 was $5.30 to $5.45 with a consensus estimate of $5.39, which is where the actual earnings landed.
In 2019, though, annual EPS of $6.39 beat the consensus estimate of $6.36. The same is true for 2020 where the $9.42 reported earnings also beat the consensus estimate of $9.21. Then, in 2021, actual earnings of $13.5 squeaked over the $13.22 consensus estimate.
Dragging Behind the Retail Sector
Oddly, it appears that Target may be alone in its struggles within the retail sector. While overall consumer spending is down, other discont retailers have not experienced the same obstacles. Walmart (NYSE: WMT), for example, is doing somewhat surprisingly well in this downturn.
More importantly, Walmart beat its earnings report, with a stable 8.4 percent growth in revenue for the second quarter of the year. And even though Walmart expects to see an 8-10 percent dip in annual earnings, in their next report, this new metric is better than what had been forecast previously.
Still, even as things may be looking better for the Target competitor, Walmart maintained its guidance for the next quarter. This metric, however, contributed to Target lower their guidance in order to compete in the same space.
But lowered guidance is not the only way Target has tried to stay above water. Many retailers, Target among them, have had to make the tough decision to cut prices on basic merchandise—home goods, electronics, clothing—to liquidate some of their excess inventory.
Unfortunately for Target, these price cuts did not help much. Indeed, they closed out the quarter with 1.5 percent more inventory than the end of last quarter, as consumers remain cautious of spending to account for higher food and gasoline prices.
Holding Strong Despite the Dip
Over the past 12 months, the stock has wavered up and down but always slipping lower before bouncing back again. Still, it appears analysts have faith in the stock, as their guidance after the report remains mostly unchanged from their estimates before the report.
A few days before the release, several dozen analysts offering a 12-month price forecast for Target Corp gave a median price target of $185 with high and low estimates of $231 and $150, respectively. Analyst consensus is BUY, some may even argue STRONG BUY, while others have suggested a HOLD rating. Either way, the BUY rating has been unchanged since July. They are in agreement, however, that the stock is likely overweight, perhaps even outperforming.
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