Target Corp. (TGT) posted better-than-expected first-quarter earnings Wednesday, but said near-term profits would like fall shy of Wall Street estimates and warned that a surge in theft from its U.S. stores would likely cost $500 million more than it did last year.
Target said adjusted earnings for the three months ended in March were pegged at $2.05 a share, down 6.4% from the year-earlier period but well ahead of the Wall Street consensus forecast of $1.77 per share.
Group revenue, Target said, rose 0.6% to $25.32 billion, essentially matching analysts' estimates of a $25.3 billion tally. Target said same-store sales were flat to last year, as well, beating the Refinitiv forecast of 0.5% decline.
Target was also able to improve its overall profit margins, which rose by 0.6% to 26.3%, even as the group said inventories fell by 16%, a combination that suggests the group was able to avoid deep discounts.
Target: Current-Quarter Profit Short of Estimates
Looking into the current quarter, Target said it sees a low-single-digit percentage decline in same-store sales, with earnings in the range of $1.30 to $1.70 per share, well shy of the Street's $1.93 per share forecast. For the full fiscal year, Target repeated its forecast adjusted earnings of between $7.75 and $7.85 per share.
"We came into the year clear-eyed about the challenges consumers are facing, and we were determined to build on the trust we've established with our guests," said CEO Brian Cornell. "Thanks to the team's dedication, we saw an increase in guest traffic in Q1, with total sales increasing and profitability ahead of expectations."
"As we look ahead, we now expect shrink will reduce this year's profitability by more than $500 million compared with last year. While there are many potential sources of inventory shrink, theft and organized retail crime are increasingly important drivers of the issue," he added.
"We are making significant investments in strategies to prevent this from happening in our stores and protect our guests and our team."
Target shares were marked 2.8% higher in afternoon trading Wednesday to change hands at $161.38, taking the stock's year-to-date gain to around 6.4%.
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, introduced a bill earlier this year to target so-called "flash mobs" that carry out large-scale theft in an effort 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).
Beyond the issue of theft, however, D.A. Davidson analyst Michael Baker thinks Target's "conservative" full-year guidance is a "step in the right direction" amid a weakening consumer backdrop.
"The offset is a weak [second-quarter 2023] outlook as April and May trends slowed, but the implied [second-half 2023] outlook of $4.40- $5 brackets consensus of $4.65," Baker said.
"All things considered, we think the print could have been worse and would buy weakness as Target’s profits should grow in ‘23 off of a low base."
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