Target Earnings Fall Well Short On Painful Inventory Cuts

Target Earnings Fall Well Short On Painful Inventory Cuts

Target (TGT) missed on earnings views but met revenue expectations Wednesday, a day after walmart (WMT) beat lowered earnings and sales predictions. But both discount giants reaffirmed guidance for the second half of the year after slashing guidance earlier. TGT stock fell modestly early Wednesday morning after a solid gain Tuesday.


Target Earnings

Estimates: Wall Street forecast Target would earn 79 cents per share on $26 billion in sales. Same-store sales were seen rising about 3%.

Results: Target earned 39 cents per share, an 89% drop year-over-year. The company reported a 3% bump in revenue with $26 billion in the second quarter. Same store sales grew 2.6% in Q2 and its operating income margin was 1.2%.

Target maintained its full-year revenue guidance of growth in the low-to-mid-single digits. It also expects an operating margin rate around 6% in the second half of 2022.

“I’m really pleased with the underlying performance of our business, which continues to grow traffic and sales while delivering broad-based unit-share gains in a very challenging environment,” CEO Brian Cornell said in a news release.

In early June, Target had downgraded its second-quarter guidance. The Minneapolis-based company slashed its Q2 operating margin forecast to 2%, down from 5.3%.

The company also announced it is planning price increases to address “unusually high transportation and fuel costs.” In addition, Target also reported its intent to cull excess inventory and cancel orders before the end of the second quarter.

Slashing unwanted inventory took its toll on Target EPS and profit margins.

“While these inventory actions put significant pressure on our near-term profitability, we’re confident this was the right long-term decision in support of our guests, our team and our business,” Cornell said Wednesday.

Target made the decisions after it missed earnings estimates, guided lower on profit and reported large stockpiles of unsold goods in the first quarter. Those results sent Target stock to its lowest level since September 2020.

Target stock dropped 23% before Wednesday’s market trading. On Tuesday, shares climbed 3.9% to 180.15 Tuesday. TGT stock has scaled back above 10-week support, but is still some distance from a declining 50-day line.

Walmart Earnings

Estimates: Analysts predicted Walmart earnings to drop 9% to $1.62 per share. Analysts’ revenue target is $150.9 billion, up 7%.

Results: Walmart earned $1.77 per share vs. $1.78 a year earlier. Revenue grew 8.4% to $152.9 billion. Much of that sales gain reflects higher prices, which are response to rising costs.

Walmart reported weak fiscal Q1 results and guidance on May 17, then followed up with another warning on July 26.

The retail giant found itself with unwanted big-ticket items like TVs, as inflation-hit shoppers shifted to cheaper staples vs. discretionary goods spending.

On Tuesday, Walmart reported it’s getting a handle on its inventory.

“The actions we’ve taken to improve inventory levels in the US, along with a heavier mix of sales in grocery put pressure on profit margins for Q2 and our outlook for the year,” CEO Doug McMillon said in a statement.

Executives told analysts Tuesday that Walmart canceled billions of dollars in orders to help align inventory levels with expected demand. Fewer goods and higher prices resulted in strong revenue as Walmart reported that “mid-to higher-income customers” are flocking to its stores.

Outlook: The Dow Jones retail giant still expects Walmart US same-store sales to rise 3% excluding fuel in the second half of the year, or 4% for the full year. Based on current exchange rates, the company said it predicts a headwind of about $2.1 billion in the second half of 2022.

Walmart sees full-year adjusted EPS down 9%-11%. In July, the discount giant slashed estimates, predicting EPS would fall 11%-13%. Analysts have projected full-year earnings of $5.69 per share, down 11.9%.

For Q3, Walmart expects net sales growth of about 5% along with a 9%-11% decline in adjusted EPS.

Is Walmart A Buy Or A Sell Right Now?

Walmart stock fell slightly earlier Wednesday after jumping 5.1% to 139.39 on Tuesday. Shares are above their 50-day line and are working toward their 200-day average, according to MarketSmith analysis.

The stock has a 69 Composite Rating out of 99. It has a 74 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share price movement with a 1 to 99 score. The rating shows how a stock’s performance over the last 52 weeks holds up against all the other stocks in IBD’s database. The stock’s EPS rating is 64.

More Retail Earnings

Walmart and Target earnings are part of a big week for retail stocks. Off-price specialist TJX (TJX) missed on return early Wednesday with Ross Stores (ROST) due later this week.

Walmart’s Dow Jones peer Home Depot (HD) topped Q2 views early Tuesday, with rival home improvement chain Lowe’s (LOW) reported mixed results.

The annual rate of inflation in July dropped to 8.5%, down from 9.1% in June. The deceleration owed largely to decreasing gas prices, but federal data shows the prices of food and other goods are still on the rise.

BestBuy (BBY), dollar tree (DLTR) and General Dollar (DG) were among the other retail stocks that dropped on Walmart’s late July warning.

Target sits third, behind Walmart and Costco (COST), in the Retail-Major Discount Chains industry group. The stock has a Composite Rating of 48. Its Relative Strength Rating is 13 and its EPS Rating is 82.

Please follow Kit Norton on Twitter @KitNorton for more coverage.


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