Target Corp. (TGT) reported disappointing second quarter earnings Wednesday, as significant discounts were implemented in order to drain surplus inventory from the big box store's bottom line.
Target said adjusted earnings for the three months ending in July were 39 cents per share, down 89 percent from the same time last year, but well short of the Street consensus of 72 cents per share.
Target said group revenue increased by 3.5 percent to $26 billion, effectively matching analysts' $26.04 billion estimates. Same-store sales increased by 2.6 percent, again below Refinitiv's projection of 3.2%, while operating margins decreased to 1.2 percent, falling short of the group's July forecast of a 2% increase.
"I'm very pleased with the overall performance of our business, which continues to increase traffic and sales while delivering broad-based unit-share gains in a very tough environment," said CEO Brian Cornell. "I want to thank our entire team for their tireless effort to meet our inventory rightsizing targets that we announced in June."
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"While these inventory decisions put significant pressure on our near-term profitability, we're confident this was the correct long-term decision in support of our guests, our team, and our business," said the company. "Our team is focused on providing our guests with a safe, clean, uncluttered shopping experience in the second half of the year, with compelling value across every category, and a fresh assortment to satisfy our guests' wants and needs."
Target stock was marked 1.2 percent down in pre-market trading immediately following the earnings release, indicating a $178.00 opening bell price.
Walmart (WMT), Target's largest big box competitor, said Tuesday that improving spending patterns, as well as actions the company has taken to reduce excess inventory, will help it relieve some of the pressures it expects to face in terms of overall earnings in the second half of the year.
Walmart reported adjusted earnings of $1.77 per share for the three months ended in July, down one penny from the same month last year, but well ahead of the Street consensus estimate of $1.62 per share.
Group revenues reached $152.9 billion, up 4.8 percent from last year, which exceeded analysts' expectations of $150.81 billion. Same-store sales in the United States increased by 6.4 percent from last year, strongly exceeding the Refinitiv forecast.
At the end of the first quarter, inventories, which were up 33% from the previous year, narrowed to a 25% increase.