Target slashes full-year forecast as retailer struggles to win over frugal shoppers

Target On Wednesday quarterly sales missed expectations and lowered its full-year forecast, as it again had trouble convincing buyers to buy more than they needed.

The big-box retailer cut both its full-year sales and profit expectations. Target shares gloomy outlook with some top economists call off recession and government data shows indications Inflation is calming down.

The company said it now expects comparable sales to decline by nearly mid-single digits for the full fiscal year and earnings per share to be between $7 and $8. It previously forecast comparable sales to range from a low single-digit decline to a low single-digit increase, and earnings per share to come in between $7.75 and $8.75.

Target’s struggling shares rose 3% on Wednesday, as its fiscal second-quarter earnings beat expectations and improved inventory levels, despite softer forecasts. Investors also have low expectations from the company, which is reflected in the steep drop in its share price on Wednesday this year.

CEO Brian Cornell said Target’s sales and store traffic improved in July. Still, he said the company is cautious about trends for the second half of the year, including rising interest rates, the return of student loan payments this fall and still-high prices for everyday items.

Talking to reporters, he said, “As we look at the consumer scenario today, we believe that the consumer is still challenged by the level of inflation that they are seeing in food and beverages and household essentials.” “So it’s absorbing a huge chunk of their budget.”

Here’s what Target reported for the three-month period ended July 29, compared to Refinitiv consensus estimates:

  • Earnings per share: $1.80 vs. $1.39 expected
  • Revenue: $24.77 billion vs. $25.16 billion expected

Fall in sales after covid boom

Target’s struggle to win over shoppers in the face of inflation has dragged the company’s stock down. As of Tuesday’s end, its shares had declined 16% this year, compared with a 15% gain in the S&P 500. Its share price touched a 52-week low of $124.96 on Tuesday, nearly halving from its pandemic high.

Lakshya’s challenges continued in the recent three-month period. Total revenue decreased nearly 5% from $26.04 billion a year ago.

Comparable sales, a key metric that tracks online sales and stores open for at least 13 months, declined 5.4%. That’s a sharper decline than the 3.7% decline analysts were expecting, according to StreetAccount’s consensus estimate.

For stores, comparable sales declined 4.3%. digital Comparable sales fell 10.5%

Cornell said sales softened in the second half of May and June before recovering in July. He said its competitive sales during the Fourth of July holiday and Target Circle Week, Amazon Prime Day, helped drive results.

Speaking to reporters, Chief Financial Officer Michael Fidelke said it was difficult to determine what factors most contributed to Target’s slow sales. Among them, customers continued to buy less clothing, home decor and other non-essential items, while paying more for food, energy and rent. The company’s sales were slower than The year-ago period when sharp markdowns helped clear inventory gluts and spurred purchases.

and target faced backlash in late May on its collection of merchandise celebrating Pride Month, including some items that were later withdrawn following threats to employees. The decision to remove some items drew more criticism.

Cornell said that the “negative reaction” to Target’s Pride collection had a significant impact on sales. But he defended the company’s response, saying that after Target removed some items in June out of concern for the safety of employees and customers, “things went back to normal.” He said that the collection will continue for Gaurav Maah and other heritage months.

return to profitability

Despite the decline in sales, the retailer’s profits rose again. Target’s fiscal second-quarter net income rose to $835 million, or $1.80 per share, from $183 million, or 39 cents per share, a year earlier. It beat analysts’ expectations.

In the year-ago quarter, the retailer’s Quarterly profits were down nearly 90% Because it was struggling with a glut of unsold items. It took aggressive steps to cancel orders, reduce prices and clear inventory as customers bought less popular pandemic categories and became more frugal due to inflation.

Fidelke emphasized Target’s success in turning some of those trends around.

“We talked about this year being an important year in terms of getting the business back to profitability, and for the team to take a big step forward in the second quarter despite lower than expected sales is really great progress that on tour,” he said.

As well as company-specific actions, the discounter said it also benefited from lower markdowns, cheaper freight costs, lower supply chain and online fulfillment expenses, and increased retail prices. But it added that profits were hit by a higher drop partly due to organized retail crime.

Inventory at the end of the quarter fell 17% compared to the year-ago period. Target said the lower inventory also reflected a 25% year-over-year decline in discretionary categories.

Over the past year, Target has shaken up its product mix to lean into higher-frequency categories like groceries and home essentials. The company said growth in those segments helped offset declines in discretionary categories during the fiscal second quarter.

Christina Hennington, Target’s chief development officer, said some items are still prompting customers to open their wallets, such as brightly colored Stanley tumblers, Barbie-themed accessories and exclusive Taylor Swift vinyls for the retailer.

Beauty is also driving revenue. Ulta Beauty at Target, the smaller shops inside its stores, have more than doubled sales from a year ago, she said. Sales of other beauty items grew by double digits. And snacks, candy and beverages drove growth in Target’s food and beverage category.

As Target tries to boost sales for the rest of the year, it told the retailer The focus is on offering affordable prices, keeping a stock of frequently purchased items and taking advantage of key seasons like back-to-school.

Speaking to reporters, he said, “We are going to play the long game.” “We’re not going to hold back our categorization for a moment, but we’re going to focus on the things that made Target a hit.”

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