Target lowers its full-year sales guidance: ‘stock has hit the low’

Target Corp (NYSE: TGT) saw its sales decline in the second quarter even though consumer remained strong and a bunch of economists took a step back from their forecast of a looming recession.

Target expects a sales decline this year

Inflation has continued to decelerate in recent months as well. Still, the retail behemoth said its comparable sales were likely to be down 5.0% (roughly) this year.

Target is now calling for $7.50 a share of per-share earnings in fiscal 2023. In comparison, analysts were at $7.72. Still, Michael Baker – a Senior D.A. Davidson analyst said today on CNBC’s “Squawk Box”:

I think the stock has hit the low. Everyone knew it’ll be weak this quarter because of the Pride issues. Numbers weren’t great, but they weren’t terrible. I think it’s bit of a buy the news type of story.

Target had previously warned of a $500 million loss this year due to “shrinkage”.

Why is Target stock trading up today?

Shares of the general merchandise retailer are keeping their own this morning partly because its inventory levels improved in the second quarter and came in down 17% versus last year.

Gross margin also gained 550 basis points to print at 27%, as per the earnings press release. According to the D.A. Davidson analyst:

It’s trading at 15 times consensus estimates. Those are not likely to go down very much because the EPS guidance is roughly in line. That’s too cheap – that’s below its historical average.

Target attributed much of the strength in its recently concluded quarter to its frequency businesses (essentials, beauty, food and beverage). The retail stock is currently down over 25% versus its year-to-date high.

Target Corp Q2 earnings snapshot

• Earned $835 million versus the year-ago $183 million
• Per-share earnings also climbed from 39 cents to $1.80
• Adjusted EPS also printed at $1.80 as per the press release
• Revenue slid 5.0% on a year-over-year basis to $24.77 billion
• Consensus was $1.43 a share on $25.18 billion in revenue

Weakness in discretionary categories resulted in a more-than-expected 5.4% hit to same-store sales in the second quarter. Still, Michael Baker added:

It usually trades at about 17 times. Without those issues [shrinkage and Pride], you’d be back at that multiple. If we can sort out and move past [those issues], there’s still a margin recovery story here.

Target Corp raised its dividend by 1.9% in June as Invezz reported here.