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Earnings targets are falling short as inflation-affected buyers avoid buying things they don’t really need

Posted on by darion

Target (TGT) missed the earnings mark in the first quarter.

Its executives say they blame inflation-stricken American households.

The “biggest challenges” Target is hearing from its customers are “food and household price inflation,” President and CEO Brian Cornell said on a call with reporters, detailing first-quarter results.

Cornell added that inflation is “putting pressure on consumers’ wallets.”

Target shares fell 7% in pre-market trading on Wednesday following the results.

Cornell then said sales trends are “normalizing” in categories where inflation has declined.

This strain had the greatest impact on Target’s bread and butter, i.e. physical stores, where traffic and transaction volume fell during the quarter.

Expansive supercenters continued to report weak sales in discretionary departments such as home goods.

Target Chief Financial Officer Michael Fiddelke says the company is planning operations “conservatively” for the remainder of the year as a result of declining store sales.

“We anticipate consensus expectations for fiscal 2024 are likely to remain largely unchanged, although Target stock could underperform given EPS/operating income slightly below consensus and generally elevated expectations, including better-than-expected performance in recent quarters.” said Stifel analyst Mark Astrachan after the earnings release.

To remedy the situation and close the gap on better-performing rival Walmart (WMT), Target on Monday unveiled a plan to lower prices on 5,000 items such as milk, meat and bread.

The company has already reduced prices on approximately 1,500 items and this situation will continue until the summer.

  • Net sales: -3.1% year over year to $24.5 billion vs. estimate of $24.13 billion

  • Gross profit margin: 27.7% vs. 26.3% a year earlier, vs. estimates of 27.4%

  • Diluted EPS: -1% year-over-year to $2.03 vs. estimate of $2.05 (guidance: $1.70-$2.10)

  • Comparable sales: -3.7% year-over-year (last year up 0.7%; Walmart grew 3.8% in Q1 2024) vs. estimate -3.68%

  • Inventories fell 7% from the previous year.

  • The company once again did not repurchase any shares this quarter, even though it had $9.7 billion remaining under a prior repurchase authorization.

  • Both transaction volume and average check size decreased 1.9% in the quarter.

  • Target ended the quarter with nearly $3.6 billion in cash.

  • Second-quarter earnings per share are expected to be $1.95 to $2.35, compared to estimates of $2.19.

  • Full-year earnings per share are expected to be $8.60 to $9.60 (continuing prior guidance), compared with estimates of $9.43.

One weapon Target doesn’t have in its arsenal is a cloud services company that could finance retail investments like rival Amazon (AMZN). Amazon Web Services CEO Adam Selipsky joined a new episode of the Opening Bid podcast to share AWS’ plans for the future. Listen below.

Brian Sozzi is the editor-in-chief of Yahoo Finance. He is also the host of “Opening offerpodcast. Follow Sozzi on Twitter/X @BrianSozzi and next LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected]. Are you a CEO and want to participate in Yahoo Finance Live? Email Brian Sozzie.

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