In This Article:
The economy is proving to be a moving bullseye for Target (TGT).
In its second quarter earnings report, the discounter slashed its full-year profit outlook on Tuesday, warning that general economic malaise, rising interest rates, and uncertainty from the restart of student loan repayments in a few weeks may continue to take their collective toll.
"The resumption of student loan repayments is one of many factors that we're watching really closely," Target CFO Michael Fiddelke told Yahoo Finance on a media call.
Target CEO Brian Cornell added that the back-to-school season has started on a "solid" note but warned that much of the key shopping period lay ahead of the retailer.
Shares rose 7.5% in pre-market trading as Wall Street speculated the guidance cut wasn't as bad as feared.
Read more: How to prepare for when student loan repayments resume
Yet another cautious outlook from Target arrives as the big-box retailer continues to battle a more price-competitive Walmart (WMT) and the fallout from consumer uproar over Pride Month merchandise.
"Certainly, during the month of June we did see some behavior from guests that caused our teams to feel unsafe at work," Cornell said on the Pride Month fallout. "And we certainly saw some angry guests that were intimidating our team members and damaging merchandise and defacing some of the signage. Once we took those actions and addressed the situation, we certainly saw things normalize and we certainly think we took the right steps during that moment in time."
The earnings rundown
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Net sales: -4.9% year over year to $24.8 billion vs. estimates for $24.96 billion
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Gross profit margin: 27% vs. 21.5% a year ago and estimates for 25.63%
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Inventory growth: -17% year over year vs. estimates for -35.75%
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Diluted EPS: +357.6% year over year to $1.80 vs. estimates for $1.40
What else caught our attention
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Comparable sales dropped 5.4% from a year ago (last year they rose 2.6%):
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Digital comparable sales: -10.5%
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Store comparable sales: -4.3%
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Inventory fell 17% from the prior year, led by a 25% reduction in the stock of discretionary categories like apparel and home goods.
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The company didn't repurchase any of its stock in the quarter despite having $9.7 billion left on a prior buyback authorization.
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Both the number of transactions and average check size declined in the quarter.
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Third quarter earnings per share are seen in a range of $1.20 to $1.60 vs. estimates for $1.84.
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Full-year earnings per share are seen in a range of $7.00 to $8.00 (previous: $7.75 to $8.75).