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Target Corporation (NYSE:TGT) jumped in early trading on Wednesday after the retailer posted a mixed Q2 earnings report.
The retailer reported comparable sales decreased 5.4% during the quarter vs. -1.7% consensus. Total sales fell 4.9% to $24.8B to miss the consensus mark of $25.3B. Continued growth in frequency categories such as essentials & beauty and food & beverage was partially offset by declines in discretionary categories. Same-day services grew nearly 4% during the quarter, led by nearly 7% growth in Drive-Up.
Target’s (TGT) operating margin rate was 4.8% vs. 1.2% a year ago. compared with 1.2 percent in 2022. Gross margin rate was 27.0% of sales vs. 21.5% a year ago, reflecting lower markdowns and other inventory-related costs, lower freight costs, retail price increases, and lower supply chain and digital fulfillment costs. The improved margins helped Target (TGT) beat estimates on the EPS line, with a tally of $1.80 recorded vs. $1.42 consensus. Adjusted EBITDA was $1.90B vs. $1.58B consensus.
Inventory was down 17% at the end of the quarter compared to a year ago, reflecting a 25% reduction in discretionary categories, partially offset by inventory investments to support frequency categories, and strategic investments to support long-term market-share opportunities.
Target (TGT) did not repurchase any stock in the quarter. At the end of the quarter, TGT had approximately $9.7B of remaining capacity under the repurchase program approved by the board.
CEO statement: “Our second quarter financial results clearly demonstrate the agility of our team and the resilience of our business model, as we saw better-than-expected profitability in the face of softer-than-expected sales. With the benefit of a much-leaner inventory position than a year ago, the team was able to quickly respond to rapidly-changing topline trends throughout the second quarter, while continuing to focus on the guest experience.”
Looking ahead, Target (TGT) lowered its full year sales and profit expectations. TGT now expects comparable sales in a wide range around a mid-single digit decline for the remainder of the year, and now expects full-year GAAP and adjusted EPS of $7.00 to $8.00 vs. $7.75 to $8.75 prior range.
Shares of Target (TGT) rose 9.64% during the premarket session.
