Target Earnings Miss After Walmart Beat, But Both Stick To Guidance

Target (TGT) missed earnings views but met revenue expectations on Wednesday, a day after walmart (WMT) beat lower revenue and sales forecasts. But the two discount giants reaffirmed their guidance for the second half after cutting their guidance earlier. TGT stock fell slightly early Wednesday morning after a strong gain on Tuesday.




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Target gains

Estimates: Wall Street forecasts Target would earn 79 cents per share on $26 billion in sales. Same store sales increased approximately 3%.

Results: Target earned 39 cents per share, an 89% year-over-year decline. The company reported a 3% increase in revenue to $26 billion in the second quarter. Comparable store sales increased 2.6% in the second quarter and their operating margin was 1.2%.

Target maintained its full-year revenue guidance of low to mid-single digit growth. It also expects an operating margin rate of around 6% in the second half of 2022.

“I’m very pleased with the underlying performance of our business, which continues to grow traffic and sales while delivering large-scale unit share gains in a very challenging environment,” said CEO Brian Cornell in a press release.

In early June, Target had revised its guidance for the second quarter downwards. The Minneapolis-based company cut its second-quarter operating margin forecast to 2% from 5.3%.

The company also announced that it was planning price increases to deal with “unusually high transportation and fuel costs.” Additionally, Target also announced plans to eliminate excess inventory and cancel orders before the end of the second quarter.

The reduction in junk inventory impacted target EPS and profit margins.

“While these inventory actions put significant pressure on our near-term profitability, we believe it was the right long-term move to support our customers, our team and our business,” Cornell said Wednesday.

Target made the decisions after missed revenue estimates, guided down on earnings and reported large inventories of unsold goods in the first quarter. These results sent Target stock to its lowest level since September 2020.

The target stock fell 23% ahead of Wednesday market trade. On Tuesday, shares climbed 3.9% to 180.15 on Tuesday. TGT stock has moved back above the 10-week support, but it is still far from a 50-day falling line.

Walmart revenue

Estimates: Analysts predicted Walmart’s earnings would fall 9% to $1.62 per share. Analysts’ revenue target is $150.9 billion, up 7%.

Results: Walmart gained $1.77 per share from $1.78 a year earlier. Revenue rose 8.4% to $152.9 billion. Much of this sales gain reflects higher prices, which are a response to rising costs.

Walmart released weak first-quarter earnings and budget guidance on May 17, then issued another warning on July 26.

The retail giant was left with unwanted big-ticket items like TVs as inflation-hit shoppers shifted to cheaper staples over spending on discretionary goods.

On Tuesday, Walmart reported that it was checking its inventory.

“The steps we’ve taken to improve inventory levels in the U.S., along with a stronger grocery sales mix, put pressure on second quarter 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 bring inventory levels in line with expected demand. Fewer merchandise and higher prices led to strong revenue as Walmart reported that “middle to upper income customers” were flocking to its stores.

Outlook: Retail giant Dow Jones still expects Walmart’s U.S. same-store sales to rise 3% excluding fuel in the second half, or 4% for the full year. Based on current exchange rates, the company said it expects a headwind of around $2.1 billion in the second half of 2022.

Walmart sees adjusted EPS for the full year down 9% to 11%. In July, the discount giant cut its estimates, predicting EPS would drop 11% to 13%. Analysts had forecast full-year earnings of $5.69 per share, down 11.9%.

For the third quarter, Walmart expects net sales growth of about 5% as well as a 9% to 11% decline in adjusted EPS.


Is Walmart Buy or Sell Right Now?


Walmart stock fell earlier on Wednesday after jumping 5.1% to 139.39 on Tuesday. Stocks are above their 50-day line and trending toward their 200-day average, according to MarketSmith analysis.

The stock has a 69 composite score out of 99. It has a relative strength rating of 74, an exclusive IBD Stock Check stock price movement gauge with a score from 1 to 99. The rating shows how a stock’s performance over the past 52 weeks holds up against all other stocks in the IBD database. The EPS of the stock is 64.

More retail revenue

Profits from Walmart and Target are part of a big week for retail stocks. Off-price specialist TJX (TJX) missed earnings early Wednesday with Ross Stores (ROST) expected later this week.

Walmart’s Dow Jones Peer Home deposit (HD) Q2 views in the lead early Tuesday, with a rival home improvement chain Lowe’s (DOWN) reported mixed results.

The annual inflation rate in July fell to 8.5% from 9.1% in June. The deceleration was largely due to lower gasoline prices, but federal data shows prices for food and other goods are still on the rise.

best buy (BBY), dollar tree (LTRD) and General dollar (CEO) were among other retail stocks that fell following Walmart’s warning in late July.

Target is third, behind Walmart and Costco (COST), in the Large retail chains industry group. The stock has a composite rating of 48. Its relative strength rating is 13 and its EPS rating is 82.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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