Target earnings smash expectations but sales fall as consumers delay spending

Target Corp. reported third-quarter earnings and sales that easily topped Street estimates as strength in beauty and other “frequency” categories helped offset ongoing weakness in discretionary spending.

On the company's earnings call, chairman and CEO Brian Cornell said that while consumers are still spending, pressures like higher interest rates, the resumption of student loan repayments, increased credit card debt and reduced savings have left them with less discretionary income, forcing them to make trade-offs in their family budgets. 

"For example, this year, we've seen more and more consumers delaying their spending until the last moment," Cornell told analysts. "Guests who previously bought sweatshirts or denim in August or September are deciding to wait until the weather turns cold before making a purchase. This is a clear indication of the pressures they're facing as they work to stretch their budgets until the next paycheck." 

The discounter’s net income surged more than 36% to $971 million, with earnings per share of $2.10, for the quarter ended Oct. 28, from $712 million, or $1.54 per share, in the year-ago quarter, with Target citing “disciplined inventory and expense management” as well as lower freight costs. Adjusted earnings per share rose to $2.10 from $1.54. Analysts had forecast a decline of $1.47.

Sales decreased 4.3% to $25.004 billion, topping estimates of $25.285 billion. Same-store sales fell 4.9%. The company said declines in discretionary categories were partially offset by continued strength in “frequency” categories, most notably in beauty. Digital sales declined by 6%.

Same-store sales fell 4.9%. The number of transactions was down 4.1%; the average transaction amount inched down 0.8%.

Same-day services grew more than 8%, led by more than 12% growth in drive-up.

 "In the third quarter, our team continued to successfully navigate our business through a very challenging external environment,” stated chairman and CEO Brian Cornell. “While third quarter sales were consistent with our expectations, earnings per share came in far ahead of our forecast. This profit performance benefited from our team's commitment to efficiency and disciplined inventory management, and I'd like to thank them for their tireless efforts.

Target is relying on a combination of exclusive merchandise tie-ins with the likes of Disney and FAO Schwarz to help fuel holiday sales. The retailer has said it will offer more than 10,000 new items for the holidays, with thousands of gifts under $25. 

Target is also holding three traveling events around the country where “guests can immerse themselves in a world of wonder and joy inspired by holiday journeys.” Billed as “Target Wonderland: Bullseye’s Top Toys Adventure,” the pop-ups will feature larger-than-life toy experiences with brands such as Mattel, Lego and Nintendo, and festive photo ops. The first is scheduled to take place at The Seaport Piers in New York City, Nov. 18 & 19. 

For the fourth quarter, Target expects earnings per share in the range of $1.90 to $2.60. Same-store sales are expected to decline in the mid-single digit percentage range.