Target jumps as profit gain overshadows cut to forecast

BLOOMBERG

Target Corp shares clawed back some of their recent losses after a surprising profit surge in the second quarter overshadowed the company’s increasingly cautious outlook on the rest of the year.
Adjusted earnings more than quadrupled during the quarter ended in late July, Target said in a statement, reflecting the retailer’s progress in paring the bloated inventories that forced deep markdowns a year ago. The profit gain crushed Wall Street’s estimates and took the sting out of a sales decline, Target’s first in four years, and a cut to its annual profit forecast.
The upbeat second-quarter performance underscored Target’s ability to navigate a slump in discretionary-goods purchases as consumers channel more spending to services and essentials. For a company that has been getting hammered in the stock market since early 2022, that counted as good news even as Target cautioned that it still faced significant headwinds.
The results fit a common recent pattern in retail, showing continued consumer resilience in reported quarters even as companies express caution about the future. Home Depot reported a second-quarter comparable-sales decline that was better than analysts had feared, but the hardware giant maintained the full-year outlook it had lowered in May.
“The positives for Target are the margin outperformance and inventory reduction, coupled with the fact that this is one of the most hated companies in all of retail,” Vital Knowledge analyst Adam Crisafulli wrote in a note to clients.
The shares jumped as much as 8.2% in New York trading on Wednesday, the most intraday since March 2022. Target sank 16% this year through Tuesday. For comparison, an S&P index of US consumer-staples companies fell less than 1% over the same period, while the S&P 500 Index rose 16%. Shares of Walmart Inc — a key competitor that will report quarterly results on Thursday — gained 12%.
Fewer than half of analysts tracked by Bloomberg recommend buying Target shares, compared with 81% of analysts who recommend buying Walmart’s stock. Target’s report was “clearly better than the extremely negative sentiment toward the story lately,” Rupesh Parikh, an analyst at Oppenheimer & Co, said. “We expect a relief rally today followed by a likely volatile trade for the balance of the year.”
While comparable sales slipped 3% in May, the metric tumbled 7% in June, Target said on a conference call to discuss the results.