Target Corp. managed to significantly boost earnings in the second quarter when the company experienced a more severe slowdown in sales than anticipated.
In a conference call, Target chair and CEO Brian Cornell said the company has been adjusting to changing market conditions and is effectively positioned for the upcoming holidays, although he asserted challenges such as organized retail crime continue to act as a drag on business and will require industry and community cooperation to address.
Net earnings in the quarter were $835 million, or $1.80 per diluted share, versus $183 million, or 39 cents per diluted share, in the year-earlier quarter, the company reported.
A Yahoo Finance-published analyst consensus estimate for the period called for earning per diluted share of $1.38 on revenues of $25.16 billion.
Comparable sales declined 5.4% in the quarter year over year. Sales declined to $24.38 billion from $25.65 billion in the year-previous period while total revenue slipped to $24.77 billion from $26.04 billion, Target stated. Operating income was $1.2 billion versus $321 million in the year-before period.
The company reported continued growth in frequency businesses — Essentials & Beauty and Food & Beverage — partially offset declines in discretionary categories. Same-day services grew almost 4%, led by a close to 7% gain in drive-up.
In the conference call, Cornell said dealing with inventory excess last year allowed the company to maintain appropriate levels of fresh and seasonal merchandise through fiscal 2022, leading to better profitability this year. He acknowledged the top-line results in the second quarter were a disappointment. Comp trends softened in the second half of May and through June before recovering in July. Cornell emphasized the company was happy with the Independence Day holiday and Target Circle Week sales event trends. The sales event generated a half million new members of the Target Circle membership program, Cornell added.
In the call, Cornell also addressed the controversy that arose when Target moved some Pride merchandise to less conspicuous store locations in geographies where the program generated aggressive customer behavior. he affirmed the retailer’s commitment to carrying Pride merchandise, maintaining that some developments as they are playing out today have forced the company to reconsider certain aspects of operations in part to assure customer and employee safety. He asserted retail theft and organized retail crime has become an unacceptable problem.
“Shrink in the second quarter remained consistent with our expectations but well above the sustainable level where we expect to operate over time,” Cornell said. “And, unfortunately, safety incidents associated with theft are moving in the wrong direction. During the first five months of this year, our stores saw a 120% increase in theft incidents involving violence or threats of violence.”
He said the company is working with community and retail organizations to address the challenge.
For the holiday, Cornell said Target will focus on newness, quality and affordability. He said the company would focus on retail basics, particularly four factors: being reliably in stock; highlighting affordability across assortment, presentation and marketing; leveraging the proximity of stores to customers; and ensuring a “seamless, differentiated, easy and inspiring guest experience.”
In announcing the financial results, Cornell said, “Our second-quarter financial results clearly demonstrate the agility of our team and the resilience of our business model, as we saw better-than-expected profitability in the face of softer-than-expected sales. With the benefit of a much-leaner inventory position than a year ago, the team was able to quickly respond to rapidly changing topline trends throughout the second quarter, while continuing to focus on the guest experience. 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. 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, positions us to deliver sustainable, profitable growth in the years ahead.”
Target noted it now expects full-year earnings per share of $7-$8, versus the prior range of $7.75-$8.75. For the third quarter, the company expects comps to fall by about mid-single digits, and earnings per share of $1.20-$1.60.
