Target (TGT) -) posted stronger-than-expected second-quarter earnings Wednesday, but slashed its full-year profit forecast as American consumers trim discretionary spending in the face of inflation pressures.
Target said adjusted earnings for the three months ended in June were pegged at $1.80 a share, more than six times the level for the year-earlier period and well ahead of the Wall Street consensus forecast of $1.39 per share.
Group revenue fell 5% to $24.77 billion, missing analysts' estimates of a $25.18 billion tally. Same-store sales fell 5.4% from a year ago as well, missing the Refinitiv forecast of a 3.2% decline. Digital sales were down 10.5%, the biggest decline since the group began gathering separate data for online sales.
Chief Executive Brian Cornell told investors on a conference call that Target employees faced what he called "negative guest reaction" from customers in the wake of the group's decision to promote LGBTQ+ causes with a 'Pride Month' collection of clothing options in June.
That led to softening sales trends in the first part of Q2, Cornell added. Trends improved "meaningfully" over the following month in July.
Still, Target was able to improve its overall profit margins, which widened by 0.7 point to 27%, thanks to lower markdowns. Inventories fell 17%.
Target: 'Cautious Approach to Planning'
Looking into the current quarter, Target said it saw adjusted earnings of $7 to $8 per share, shy of its prior forecast of between $7.75 and $7.85 per share. It sees comparable sales in a "wide range" of mid-single-digit declines for the remainder of the year.
Analysts expect consumers to struggle with rising gas prices and soaring mortgage rates. They also face the end of a moratorium on student loan payments, a factor that could take some $100 billion out of retail spending over the coming year.
"As we move into the fall, the team is gearing up for the biggest seasons of the year, with a focus on continuing to serve our guests with newness throughout our assortment," Cornell said.
"At the same time, we continue to take a cautious approach to planning our business, and have therefore adjusted our financial guidance in anticipation of continued near-term challenges on the top line.'
"This approach, along with the long-term investments we're making in our business and strategy, position us to deliver sustainable, profitable growth in the years ahead," Cornell added.
Target shares, which were down 18% for the year, were marked 5% higher in early Wednesday trading at $131.51 each.
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Target: Theft and Threat of Theft Doubled
Cornell also said Target faced a 120% in theft, or threat of theft, over the first five months of the year from the year-earlier period. The CEO warned that the group continues to face an "unacceptable" level of theft he linked to organized crime.
Cornell said in May that theft from its U.S. stores would likely cost $500 million more than it did last year.
The National Retail Federation defines "organized retail crime" as "the large-scale theft of retail merchandise with the intent to resell the items for financial gain." The trade group said members suffered more than $94 billion in losses over the 2021 financial year as a result.
Senate lawmakers, in fact, earlier this year introduced a bill to target so-called flash mobs that carry out large-scale theft. Lawmakers' move aims to "improve our federal response to organized retail crime and establishes new tools to recover goods and illicit proceeds, and deter future attacks on American retailers," according to co-sponsor Chuck Grassley (R-Iowa).
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