Goal ( TGT ) missed earnings views but met revenue expectations on Wednesday, with the retail giant affirming its second-half guidance after cutting guidance in June. TGT’s financial report comes the following day Walmart (WMT) beat reduced revenue and sales forecasts. TGT shares fell early Wednesday morning.
Estimates: Wall Street predicted Target would earn 79 cents a share on $26 billion in sales. Same-store sales were estimated to be around 3%.
Results: Target earned 39 cents per share, down 89% year over year. The company reported a 3% increase in revenue of $26 billion in the second quarter. Same-store sales increased by 2.6% in the 2nd quarter and the operating income margin was 1.2%.
Target maintained its full-year revenue guidance for growth in the low to mid-single digits. It also expects an operating margin of around 6% in the second half of 2022.
“I am very pleased with the underlying performance of our business, which continues to grow traffic and sales while delivering broad-based shareholdings in a very challenging environment,” CEO Brian Cornell said in a press release.
In early June, Target had downgraded its guidance for the second quarter. The Minneapolis-based company cut its second-quarter operating margin forecast to 2%, down from 5.3%.
The company also announced that it is planning price increases to address “unusually high transportation and fuel costs.” In addition, Target also reported its intention to clear excess inventory and cancel orders before the end of the second quarter.
“While these inventory actions place significant pressure on our profitability in the short term, we are confident that this was the right long-term decision in support of our guests, our team and our business,” Cornell said Wednesday.
Target made the decisions after it missed earnings estimates, guided for lower earnings and reported large inventories of unsold merchandise in the first quarter. Those results sent Target stock to its lowest level since September 2020.
The target stock fell more than 3% before Wednesday’s trading. On Tuesday, the shares rose 3.9% to 180.15 on Tuesday. TGT stock has leveled off above 10-week support, but remains some distance from a descending 50-day line.
Estimates: Analysts forecast Walmart earnings to fall 9% to $1.62 per share. Analysts’ revenue estimate is $150.9 billion, up 7%.
Results: Walmart earned $1.77 per share versus $1.78 a year earlier. Revenue grew 8.4% to $152.9 billion. Much of the sales gain reflects higher prices, which are a response to rising costs.
Walmart reported weak financial results and guidance for the first quarter on May 17, then followed up with another warning on July 26.
The retail giant found itself with unwanted big-ticket items like TVs, as inflation-hit shoppers turned to cheaper items versus discretionary items.
On Tuesday, Walmart signaled that they are getting control of the inventory.
“The actions we’ve taken to improve inventory levels in the US, along with a heavier mix of grocery sales, are putting pressure on Q2 profit margins and our outlook for the year,” CEO Doug McMillon said in a statement.
Executives told analysts Tuesday that Walmart canceled billions of dollars in orders to help match inventory levels with expected demand. Fewer items and higher prices resulted in strong earnings as Walmart reported that “middle- to upper-income customers” are flocking to its stores.
Outlook: The Dow Jones retail giant still expects Walmart’s US same-store sales to rise 3% excluding fuel in the second half of the year, or 4% for the full year. Based on current exchange rates, the company said it is forecasting a headwind of about $2.1 billion in the second half of 2022.
Walmart sees full-year adjusted EPS down 9-11%. In July, the discount giant cut its estimates, predicting that EPS would fall 11-13%. Analysts had forecast full-year earnings of $5.69 per share, down 11.9%.
For Q3, Walmart expects net sales growth of around 5% along with a 9% – 11% decline in adjusted EPS.
Is Walmart a buy or a sell right now?
Walmart shares rose 5.1% to 139.39 on Tuesday. Shares are above the 50-day mark and working toward the 200-day moving average, according to MarketSmith analysis.
The stock has a 48 Composite Rating out of 99. It has a 33 Relative Strength Rating, an exclusive IBD Stock Checkup measure of stock price movement with a score from 1 to 99. The rating shows how a stock’s performance over the past 52 weeks stacks up against all the other stocks in IBD’s database. The share’s EPS rating is 69.
More retail income
Walmart and Target earnings are part of a big week for retail stocks. Others due to report during the week include low-cost specialists TJX (TJX) and Ross Stores (Praise).
Walmart’s Dow Jones counterpart Home Depot (HD) topped Q2 viewings early Tuesday, with rival home improvement chain Lowes (LOW) in print Wednesday.
The annual inflation rate in July fell to 8.5%, down from 9.1% in June. The slowdown was largely due to falling gas prices, but federal data show that the prices of food and other goods are still on the rise.
Best buy (BBY), Dollar tree (DLTR) and Dollar General ( DG ) was among the other retail stocks that fell on Walmart’s warning in late July.
Target is in third place, behind Walmart and Costco (COST), in the Retail-Major Discount Chains industry group. The stock has a Composite Rating of 48. Its Relative Strength Rating is 13 and its EPS Rating is 82.
Follow Kit Norton on Twitter @KitNorton for more coverage.
YOU MAY ALSO LIKE
What is CAN SLIM? If you want to find winning stocks, you need to know better
Top fund buys into No. 1 industry leader near breakout with 364% growth
Trade with experts on IBD Live
Get an edge on the stock market with IBD Digital
S&P 500 hits break as five stocks top buy points