Big-box retailer Target (TGT) modestly beat earnings despite slowing in-store and online growth and offered a solid outlook, following strong results and guidance from rival Walmart (WMT). Target stock erased most early losses.
XTarget Earnings
Estimates: Wall Street expected second-quarter earnings to rise 4% to $3.51 per share, according to FactSet. Revenue was seen rising 9% to $24.989 billion. Same-store sales were forecast to climb 8.8%, down from a 22.9% gain in Q1, as year-over-year comparisons grew more difficult.
Results: Target earnings rose 7.9% to $3.64 per share. Revenue grew 9.5% to $25.2 billion, led by apparel. In Q2, same-store sales 8.9%. In-store comps grew 8.7%, down from a 18% gain the prior quarter, while digital comps grew 10%, down from a 50% gain the prior quarter and down from a 118% gain in Q4 2020.
Apparel led with double-digit growth. Food & Beverage delivered low-double-digit growth. Essentials & Beauty saw high-single-digit growth. Home saw low-single-digit growth. Hardlines grew mid-single-digits.
Target also announced a new, $15 billion stock buyback program.
In Q2, big-box retailers were expected to benefit from a strong back-to-school shopping season as well as the child tax credit. Visits at Walmart in July rose 2.9% vs. the same month in 2019, while visits at Target jumped 15.9% for that period, according to data firm Placer.ai.
Outlook: For H2 2021, Target forecasts high single digit growth in comparable sales, near the high end of prior guidance . It now expects its full year operating income margin rate will be 8% or higher. In May, Target forecast positive single-digit comparable sales growth in the last two quarters of the year, and full-year operating margin well above 2020's 7%, "with the potential to reach 8% or somewhat higher." Analysts were expecting full-year Target earnings of $12.40 a share, FactSet says.
Target Stock
Shares dipped 0.3% to 253.67 in Wednesday stock market action after falling modestly in early trade. Target stock rallied strongly from a March breakout but is now testing its 50-day and 10-week line. A new buy point could emerge if it finds support at that key level, according to MarketSmith chart analysis.
Walmart stock rose 0.5% to 151.52 as it works on a 153.76 buy point. Amazon (AMZN) slipped 0.3%.
The Target earnings report follows Walmart's strong quarterly report. On Tuesday, the Dow Jones retail giant reported better-than-expected Q2 earnings and revenue, while offering a bullish earnings and store outlook. But amid a weak retail sales report and general market sell-off, Walmart closed essentially flat on Tuesday while Target stock slid 3.2%.
Analysts have predicted pent-up demand for clothing, back-to-school supplies and other gear as lockdowns ease. But growth is moderating after the pandemic boom.
Both Target and Walmart were retail coronavirus stock winners. As essential businesses, they stayed open during lockdowns, while investing heavily in their e-commerce units to take online shopping share from Amazon.
Still, Target continues to put brick-and-mortar stores at the center of its growth strategy. Those stores also fulfil online orders. Its widely hailed multipronged delivery strategy includes in-store pickup and curbside pickup.
In addition, Target's private and exclusive brands have turned into key drivers of revenue.
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