Published: Wednesday, May 22, 2024
NEW YORK – Minneapolis’ retailer reported profit results below analyst expectations, and gave a tepid profit outlook. The retailer posted its fourth consecutive quarter of declining comparable sales – those from digital channels or stores that have been operating for at least 12 month. Target expects to return to growth in quarterly sales this quarter.
In premarket trading, shares fell by nearly 10% on Wednesday.
Target is trying to find ways to reverse the softening of sales. Target announced on Monday that it would be lowering prices for thousands of basic consumer goods over the next few months. This includes everything from diapers and milk to attract customers looking for bargains.
Target is also working to make the shopping experience more enjoyable and convenient to compete with Walmart.com and Amazon.com.
Target Circle 360, a paid membership program launched in April by Target, offers unlimited same-day free delivery on orders above $35 as well as free shipping two days a week for all orders. The company reports that the $99 annual membership has been well received.
The company is updating existing stores, adding more than 300 new ones over the next ten years, and expanding store-owned brands to offer more affordable choices for customers.
Target is one of the retailers who have released quarterly results, but they did not do as well as Amazon or Walmart. Amazon, America’s largest online retailer, reported better than expected results for the holiday season last month. Walmart’s low prices attracted bargain-hunting shoppers, which led to strong sales.
Walmart also attracts households earning more than $100,000 per year, as they focus on faster and easier ways to shop. Walmart reported that two-thirds (63%) of the market share growth at Walmart comes from this group.
Home Depot and Lowe’s, the nation’s two largest home improvement retailers, which had previously reaped benefits from pandemic spending on home improvements, have posted yet another quarter of declining sales. This is due to high mortgage rates and inflation putting pressure on homeowners and potential home buyers.
Target CEO Brian Cornell said to reporters on Tuesday that the shopping habits of customers are changing, as they gravitate towards services instead of home entertainment. This reduces spending on discretionary goods. He said that inflation in groceries and household items is a major challenge. In many cases, he said prices are still 20%-30% higher than before the pandemic. He said that this is “putting a strain on consumer wallets.”
Cornell noted that a strong job market, and consumers’ confidence in their ability to find another job have helped boost spending.
Cornell stated that “we haven’t noticed a major change in consumer behavior” for the past few quarters. We still see consumers who are very resilient and expect this to continue throughout the rest of the year.
Target’s net income was $942 million or $2.03 per common share. This is three cents below analysts’ expectations, according to FactSet. Profits for the four-week period ending May 4 were also lower than last year, when they reached $950 million or $2.05 per common share.
The Wall Street consensus was $24.52 billion. However, the actual revenue of $24.53 billion is slightly higher than what Wall Street had expected.
The latest quarter saw a 3.7% decline in comparable sales, which is a slighter drop than the 4.4% decrease during the previous quarter.
The company stated that the declines in sales were mostly in the discretionary category, but were offset in part by growth in beauty. Target did say that clothing sales were still down but improved.
Target expects its comparable sales for the second quarter to range from unchanged to a gain of 2%. It is expecting to earn $1.95 to $3.35 per share. Analysts expect $2.20 per share.
Target expects comparable sales to increase by no more than 2 percent for the entire year. Earnings should range between $8.60 and $9.60 per share. FactSet reports that analysts expect $9.49.