Target (TGT) Q1 Earnings Beat Estimates, Comps Flat Y/Y

Target Corporation (TGT Quick QuoteTGT - Free Report) came up with first-quarter fiscal 2023 results, wherein the top line missed the Zacks Consensus Estimate, while the bottom line beat the same. Total revenues improved year over year, but earnings declined from the year-ago period. Comparable sales for the quarter were flat to last year. Target witnessed stellar demand in frequency categories but a pullback in discretionary categories.Following the results, management provided a muted view for the second quarter. However, it maintained the full-year forecast based on the expected benefit from efficiency and cost-containment efforts. Target also cautioned that inventory shrink, mainly due to theft and organized retail crime, is likely to hurt this year's profitability by more than $500 million.

Target reported adjusted earnings of $2.05 per share, which surpassed the Zacks Consensus Estimate of $1.74. However, the bottom line declined from the earnings of $2.19 reported in the year-ago period.The big-box retailer generated total revenues of $25,322 million, which increased 0.6% year over year. However, the metric fell short of the Zacks Consensus Estimate of $25,338.2 million. We note that sales jumped 0.5% to $24,948 million, while other revenues rose 10.2% to $374 million.

Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote

Meanwhile, comparable sales for the quarter were flat to last year. The metric reflected comparable store sales growth of 0.7% and a comparable digital sales decline of 3.4%. Traffic jumped 0.9% during the quarter. Strength in Food & Beverage, Beauty and Household Essentials offset the ongoing softness in discretionary categories.We had expected a comparable sales decline of 0.5% and a comparable store sales decline of 0.2% for the quarter under discussion.

The gross margin increased 60 basis points to 26.3%, reflecting the benefits of lower freight costs, retail price increases, lower clearance markdown rates and lower digital fulfillment costs. These were partly offset by higher inventory shrink. Meanwhile, the operating margin shriveled to 5.2% from 5.3% in the year-ago period.We had expected year-over-year declines of 10 basis points and 100 basis points in the gross margin and operating margin rates, respectively, for the quarter under review.

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $1,321 million, long-term debt and other borrowings of $16,010 million and shareholders’ investment of $11,605 million. During the quarter, Target paid out dividends of $497 million.Target did not buy back any shares during the quarter under review. At the end of the quarter, the company had about $9.7 billion remaining under the repurchase program approved in August 2021.

Based on soft first-quarter sales trends, Target envisions second-quarter fiscal 2023 comparable sales to decline in the low single digits. For the quarter, the company expects both GAAP and adjusted earnings in the band of $1.30-$1.70 per share.For fiscal 2023, management continued to expect comparable sales in a wide range, from a low-single-digit decline to a low-single-digit increase. Target expects the operating income to grow more than $1 billion. It expects both GAAP and adjusted earnings between $7.75 and $8.75 per share.We note that shares of Target have increased 5.3% so far in the year compared with the industry's rise of 2%.

Here we have highlighted three better-ranked stocks, namely Kroger (KR Quick QuoteKR - Free Report) , The TJX Companies (TJX Quick QuoteTJX - Free Report) and General Mills (GIS Quick QuoteGIS - Free Report) .Kroger, which operates as a supermarket operator, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 6%. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.The Zacks Consensus Estimate for Kroger's current financial-year revenues and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 9.8%, on average.

TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 10.5%.The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and earnings suggests growth of 6.4% and 13.2% from the year-ago period. TJX has a trailing four-quarter earnings surprise of 6%, on average.General Mills, which manufactures and markets branded consumer foods, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 7.5%.The Zacks Consensus Estimate for General Mills’ current financial-year sales and earnings suggests growth of 6.3% and 7.4% from the year-ago period. GIS has a trailing four-quarter earnings surprise of 8.1%, on average.