Shares of merchandise retailer Target Corp. (TGT) (GB:0ID8) are down 3% halfway into today’s trading session after the company’s second-quarter numbers failed to surpass the Street’s estimates. Revenue inched upwards by 3.5% year-over-year to $26.04 billion but fell short of the consensus by $30 million. Target’s EPS of $0.39 missed expectations of $0.79.
During the quarter, comparable sales grew by 2.6%, with gains across the Food & Beverage, Beauty, and Household essentials categories. Additionally, the retailer also made unit share gains across all five of its merchandise categories.
While digital comparable sales increased by 9%, over 95% of Q2 sales were fulfilled by the company’s stores. Furthermore, boosted by Drive Up, same-day services witnessed an increase of almost 11%. Additionally, physical sales continue to contribute the lion’s share of total sales at 82.1%.
Interestingly, our Website Traffic Tool had indicated this performance well ahead of the results owing to a drop in online traffic.
Despite these gains, a 1.2% operating margin indicated gross margin pressure as Target maneuvered to clear excess inventory while also facing increased freight and transportation costs. Target has now lowered its discretionary category inventory and invested in the frequency categories.
The Chairman and CEO of Target, Brian Cornell, commented, “I want to thank our team for their tireless work to deliver on the inventory rightsizing goals we announced in June. While these inventory actions put significant pressure on our near-term profitability, we are confident this was the right long-term decision.”
Looking ahead, the company expects full-year top-line growth in the low to mid-single-digit range and an operating margin of 6% in the second half of the year.
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What is a Good Price for Target Stock?
The Street remains cautiously optimistic about the stock with a Moderate Buy consensus rating and a price target of $184.11, implying that the stock is reasonably priced at current levels.
MKM Partners’ William Kirk has reiterated a Hold rating on the stock alongside a price target of $163. The analyst is skeptical of Target’s margin guidance and feels sales discounts could hamper the company’s brand.
Changing Consumer Tastes Remain a Challenge for TGT Stock
This season, retailers have been caught off guard by fast-changing consumer buying patterns as buyers shun discretionary spending amid rising inflation. How Target’s inventory actions pan out in the coming periods remains to be seen.
