Target earnings, revenue fall amid softness in discretionary goods, food

Target Corp. had a rare earnings miss in its first quarter as consumers pulled back spending not only on discretionary items but on groceries as well.

The discounter released its results two days after it announced that it would reduce prices on approximately 5,000 frequently shopped items across its assortments. The prices cuts are already in effect on about 1,500 items, with thousands more to take effect over the summer. 

Target’s net income inched down to $942 million, or $2.03 a share, for the quarter ended May 4, from $950 million, or $2.05 a share, in the year-ago period. Analysts had expected earnings per share of $2.06.  It was the retailer’s first profit miss in six quarters. 

Gross margin improved to 27.7% from 26.3%, helped by cost cuts.

“Target’s 1Q report demonstrated Fitch’s view that discretionary goods spending will be challenged in 2024, but that companies with good execution and the benefit of moderating cost inflation can limit the impact of weak topline on earnings,” said David Silverman, senior director, Fitch Ratings. “The company somewhat mitigated consumer spending headwinds with good cost control, which has been a theme for Target over the past year following a difficult 2022.”

Total revenue fell 3.1% to $24.53 billion, just ahead of estimates of $24.52 billion. Sales declines, primarily in discretionary categories, were partially offset by continued growth in beauty, Target noted.

Comparable sales fell 3.7%. Comp-store sales were down 4.8%, which was partially offset by a 1.4% increase in comparable digital sales. The number of transactions fell 1.9%. The average transaction amount fell 1.9%.

“Our first quarter financial performance was in line with our expectations on both the top and bottom line, tracking the trajectory we outlined for this year and setting up a return to growth in the second quarter," said Target CEO Brian Cornell. "Our topline performance improved for the third consecutive quarter, with growth in our digital business led by strength in our same-day fulfillment services.”

During the quarter, the company relaunched its loyalty program, Target Circle, with more than 1 million members new to the platform in the first quarter. Cornell said Target was “pleased’ with early results from the relaunch. 

For the second quarter, Target expects a 0% to 2% increase in its comparable sales, and GAAP and adjusted earnings per share of $1.95 to $2.35.

For the full year, Target continues to expect a 0% to 2% increase in its comparable sales, and GAAP and adjusted earnings per share of $8.60 to $9.60.

“Looking ahead, Fitch expects the combination of Target’s strong relationship with customers, robust omnichannel model, recent efforts to relaunch Target’s loyalty program and reduce prices on key items, and easing comparisons to support some improvement in topline as we move through 2024 despite ongoing consumer spending headwinds,” Silverman said.