On Wednesday, Target Corp. witnessed a notable surge in its stock following the announcement of a surprising increase in fiscal third-quarter profit, surpassing projections by a significant margin. Although total sales fell short of Wall Street forecasts, same-store sales, representing sales from stores open for over a year, exceeded expectations.
During a conference call before the market opened, Target's Chief Executive Brian Cornell acknowledged soft industry trends in discretionary categories and higher inventory shrink. While he mentioned that overall consumer spending persists, Cornell pointed out factors such as elevated interest rates and the resumption of student loan repayments as influences impacting discretionary purchases.
The CEO also noted a delay in consumer buying behavior, highlighting the postponement of purchases for colder-weather items like denim and sweaters that typically occur in August. This delay serves as a clear indicator of the pressures consumers are currently experiencing.
This trend of discretionary spending pressure has been echoed by other retail giants in the current earnings season, including Home Depot Inc., which reported pressure in specific big-ticket discretionary categories on Tuesday.
In response to Target's positive earnings surprise, its stock surged 13.6% in premarket trading, aiming for a three-month high. This performance is on track to be the most significant one-day gain since the record 20.4% rally on August 21, 2019.
For the quarter ending October 28, net income rose to $971 million, or $2.10 per share, compared to $712 million, or $1.54 per share, in the same period the previous year. This increase was attributed to disciplined inventory and expense management. Adjusted earnings per share, excluding nonrecurring items, also rose to $2.10 from $1.54, exceeding the consensus, which expected a decline to $1.47.
Despite the decline in sales by 4.3% to $25.004 billion, falling below the consensus of $25.285 billion, the company reported a better-than-expected 4.9% decline in same-store sales. The cost of sales decreased more than sales, down 7.8% to $18.15 billion, and the value of inventory dropped 13.9% from last year to $14.73 billion.
Looking ahead to the fourth quarter, Target anticipates adjusted EPS in a range of $1.90 to $2.60, aligning with the current consensus of $2.23. Same-store sales are expected to decline in the mid-single digit percentage range, compared to the consensus of a 5.3% fall.
Over the past three months, Target's stock has experienced an 11.4% decline, contrasting with a 5.3% gain for Walmart Inc. and a 1.3% increase for the S&P 500.
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