Target shares powered firmly higher in Wednesday trading after the retailer posted stronger-than-expected fiscal-second-quarter earnings and boosted its full-year profit forecast in a major validation of CEO Brian Cornell's turnaround effort.
Target (TGT) , which has been losing ground to larger rival Walmart since the Covid pandemic changed shopping habits and Americans became more value-conscious in the face of surging inflation, as responded by overhauling its membership program, slashed grocery and household-product prices and improved its online sales platform this year.
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The various moves look to have paid solid early dividends, with Target posting an adjusted bottom line of $2.57 a share for the three months ended in July. The tally was nearly 40 cents higher than the Wall Street consensus forecast and 43% higher than it was in the year-earlier period.
Group revenue also impressed, with Target recording $25.45 billion, a 4.3% gain from the year-earlier period and also ahead of Wall Street forecasts.
Same-store sales were up 2%, the first advance in five quarters and a gain that suggests Target's efforts to boost store traffic, with summer sales events and its revamped Target 360 program, are having the desired effect.
"We made a commitment to get back to growth in the second quarter, and the team delivered, all while expanding operating margins and growing earnings by more than 40% compared to last year," Cornell said. "Importantly, our growth was driven entirely by traffic in stores and our digital channels, with double-digit growth in our same-day delivery services.
"Looking ahead, even as we maintain the measured outlook that has served us well, we are focused on building on this positive momentum by executing our strategy and providing the unique combination of newness and value that consumers can only find at Target," he added.
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Target also improved its full-year profit forecast, calling for earnings of $9.00 to $9.70 a share, a 10-cent boost from its prior estimate in late May.
Target shares rose 11% on August 21, immediately following the earnings release, closing at $159.25 each.
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Walmart posted a blowout Q2
D.A. Davidson analyst Michael Baker called Target's results "one of the more surprising prints so far in big box earnings season," adding that "better than expected sales and margins should help the stock regain the momentum from earlier this year before the May disappointment."
In an environment where many consumer names are missing, and the economy feels like it's worsening, Target's strong results seem to reflect better execution in our view," said Baker, who carries a 'buy' rating on the retailer.
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Last week, Walmart unveiled a blowout second quarter, a report that lifted its stock to a record: revenue of $169.3 billion and same-stores-sales growth for its U.S. business of 4.2%.
Looking into the current financial year, Walmart estimates earnings between $2.35 and $2.43 a share, up from its prior forecast of $2.23 to $2.37. The Bentonville, Ark., chain estimates net sales will rise between 3.75% and 4.75%.
"So far, we aren't experiencing a weaker consumer overall, [but] while we have not seen any additional fraying of consumer health in our business, other economic data out there, as well as the state of affairs globally, would suggest that it's prudent to remain appropriately cautious with our outlook," Walmart's finance chief, John David Rainey, told investors on Aug. 15.
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