News

Target Corporation TGT reported third-quarter fiscal 2024 results, with the top and bottom lines falling short of the Zacks Consensus Estimate. While revenues saw a slight increase, earnings took a significant hit compared to the prior year due to cost pressures.

This Minneapolis, MN-based company posted comparable sales growth, but the pace slowed considerably from the preceding quarter. While comparable store sales declined, the drop was more than offset by an increase in comparable digital sales.

In response to lower-than-expected results, Target revised its fiscal 2024 earnings forecast downward. The retail bellwether also offered a cautious outlook for the final quarter, leading to a drop in Target’s shares during the pre-market trading session.

Target’s Quarterly Performance: Key Metrics and Insights

Target reported adjusted earnings of $1.85 per share, which missed the Zacks Consensus Estimate of $2.29 and declined from $2.10 reported in the year-ago period.

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The big-box retailer generated total revenues of $25,668 million, which came below the Zacks Consensus Estimate of $25,910 million. However, the metric improved 1.1% on a year-over-year basis. We note that sales rose 0.9% to $25,228 million, while other revenues jumped 11.5% to $440 million.

Meanwhile, comparable sales rose 0.3% in the third quarter, following a 2% increase in the preceding quarter. The metric reflected a decline of 1.9% in comparable store sales but an increase of 10.8% in comparable digital sales. We had expected a comparable sales increase of 1.8% for the quarter under discussion.

While traffic improved by 2.4%, the average transaction amount declined by 2%. Target saw beauty comparable sales increase by more than 6%, while the Food & Beverage and Essentials categories grew in the low-single digits year over year.

The gross margin contracted 20 basis points to 27.2%, against our expectation of a 90-basis point improvement. This can be attributed to higher digital fulfillment and supply-chain costs resulting from increased inventory levels, a rise in digital sales volume and new supply-chain facilities coming online. These were partly mitigated by lower book-to-physical inventory adjustments and the net effect of merchandising activities compared to the previous year.

The operating margin shrunk to 4.6% from 5.2% in the corresponding period last year. We had anticipated a 40-basis point improvement in the operating margin.

Target Corporation Price, Consensus and EPS Surprise

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

Target’s Financial Health Snapshot

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $3,433 million, long-term debt and other borrowings of $14,346 million and shareholders’ investment of $14,489 million. During the quarter, Target paid out dividends of $516 million.

Target repurchased 2.4 million shares worth $354 million during the quarter under review. At the end of the quarter, the company had about $9.2 billion remaining under the repurchase program approved in August 2021.

A Sneak Peek Into TGT’s Outlook

Target anticipates comparable sales to be flat in the fourth quarter of fiscal 2024. Both GAAP and adjusted earnings for the final quarter are expected to fall in the range of $1.85-$2.45 per share compared with $2.98 reported in the year-ago period.

However, Target now anticipates GAAP EPS and adjusted earnings for the fiscal year in the band of $8.30-$8.90 per share compared with the $8.94 reported in fiscal 2023. Earlier, the company had guided earnings between $9.00 and $9.70.

Shares of Target have advanced 9.5% year to date compared with the industry’s growth of 22.7%.

Don’t Miss These Solid Bets

Sprouts Farmers SFM, which is engaged in the retailing of fresh, natural and organic food products, currently sports a Zacks Rank #1 (Strong Buy). SFM has a trailing four-quarter earnings surprise of 15.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings implies growth of 12.2% and 29.6%, respectively, from the year-ago reported numbers.

McCormick & Company MKC is a global food company that manufactures, markets and distributes spices, condiments, seasoning mixes and other flavoring products. It currently carries a Zacks Rank #2 (Buy). MKC has a trailing four-quarter earnings surprise of 13.8%, on average.

The Zacks Consensus Estimate for McCormick & Company’s current financial-year sales and earnings suggests growth of around 0.6% and 8.2%, respectively, from the year-ago reported numbers.

Freshpet FRPT, which manufactures, distributes and markets natural fresh meals and treats for dogs and cats, currently carries a Zacks Rank #2. FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.3% and 224.3%, respectively, from the year-ago reported numbers.

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