Target stock bleeds after shortfall; Dismal visits to the website hinted
Recording its worst fall in 35 years, Target Corporation (NYSE: TGT) fell nearly 25% to close at $161.61 on Wednesday. The decline in Target’s stock price also had negative effects on overall market sentiment. The stock is currently down another 3.6% today.
The backlash came following Target’s earnings disaster in the first quarter of fiscal 2022 (ended April 30, 2022) and concerns over the health of retailers in the country. A few days ago, another retail giant, Walmart Inc. (NYSE: WMT), delivered disappointing results, with a 12.2% shortfall in the first quarter of fiscal 2023 (ended April 30, 2022).
Financial and operational highlights
Target reported first-quarter adjusted earnings of $2.19 per share, trailing the consensus estimate of $3.07 per share by 28.7%. Year over year, net income was down 40.7% from the prior year’s total of $3.69 per share.
Revenue was $25.17 billion, beating the consensus estimate of $24.48 billion by 2.9%. Additionally, revenue increased 4% year-over-year driven by 4% growth in total sales and a 6.7% increase in other income. Demand was favorable for household products, food and beverages and beauty products.
Comparable sales in the quarter increased 3.3% year over year, with sales from stores increasing 3.4% and sales from digital increasing 3.2%. It should be mentioned that comparable sales growth was 22.9% in the prior year quarter.
At the end of the first quarter, Target had 1,933 stores, compared to 1,926 at the end of the previous quarter. Guest traffic growth was recorded at 4% in the quarter.
The company recorded a 10.4% increase in cost of sales for the quarter and a 5.6% increase in selling, general and administrative expenses. High transportation, supply chain issues, transportation costs and measures to reduce huge inventories weighed on quarterly results.
Gross margin fell 430 basis points (bps) to 25.7%, while operating margin lost 450 bps to 5.3%. Earnings before interest, taxes, depreciation and amortization fell 39.7% year-over-year to $2.04 billion.
Balance sheet and cash flow
At the end of the first quarter, Target’s cash and cash equivalents were $1.11 billion, down 81.2% sequentially. Additionally, its long-term debt fell 1.3% quarter-over-quarter to $13.4 billion.
The company used $1.39 billion for operating activities in the first quarter, compared to cash generation of $1.14 billion in the year-ago quarter. Capital expenditures of $952 million reflect year-over-year growth of 76.3%.
For the second quarter of fiscal 2022 (ending July 2022), Target expects its operating margin to be “in a broad range centered on [the] an operating margin rate of 5.3% in the first quarter.
For fiscal 2022, ending in January 2023, the company expects revenue growth to be in the low to mid-single digit range (the same as previous guidance). The operating margin will be around 6% against 8% expected previously.
Target President and CEO Brian Cornell said that despite short-term headwinds, “our team remains passionately dedicated to our customers and responsive to their needs, giving us continued confidence in our long-term financial algorithm. term, which anticipates mid-single-digit revenue”. growth and an operating margin rate of 8% or more over time.
Target used $48 million to pay down long-term debt in the first quarter while paying out $424 million in dividends to shareholders. It also carried out share buybacks for $181 million and its accelerated share buybacks (pending final settlement) amounted to $2.75 billion.
The Taking of Wall Street
On May 18, 2022, Mark Astrachan of Stifel Nicolaus downgraded TGT’s rating to Hold from Buy while lowering the price target to $185 (upside potential of 14.47%) from $270. The changes were driven by the company’s missed first quarter results and high cost risks.
The analyst commented that the company’s cost headwinds “are likely to continue at least through the end of 2022, resulting in considerable pressure on earnings.”
Meanwhile, Oliver Chen of Cowen & Co. maintained a Buy rating on TGT while lowering the price target to $190 (upside potential of 17.57%) from $265. The analyst believed that “TGT’s weaker print and guide sent stocks falling sharply” and expects “the stock to be range bound in the near term.”
Overall, the street has a moderate buy consensus rating on TGT based on 12 buys and seven takes given over the past three months. Target’s price prediction of $220.43 implies 41.7% upside potential from current levels. Over the past year, Target shares have fallen 24.6%.
TipRanks’ website traffic tool, powered by data from SEMrush Holdings, Inc. (NYSE: SEMR), provides insight into Target’s performance.
According to the TipRanks Website Traffic tool, the total number of global visits to the company’s website (target.com) in the first quarter showed a downward trend, reflecting a 24.1% drop from the quarter. previous. Additionally, the first quarter figure was 13.6% lower than the prior year quarter.
Clearly the forecast, which was based on website visit data from TipRanks, is in line with Target’s dismal results for the first quarter of fiscal 2022.
Big retailers like Target and Walmart, struggling with their numbers, are worrying the retail sector in the country. A shift in consumer preferences and profits at the mercy of high costs and expenses must be dealt with effectively. Until the cloud clears for Target, a wait-and-see approach will be prudent.
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