Another Up-and-Down Quarter for Target

Amid mixed economic news – the latest retail sales data revealed consumer resilience while new inflation data indicates additional upticks in some product categories – Target reported a mixed second quarter.

The financial results reflect the tenuous macroeconomy, as some analysts are now expecting a soft recessionary landing and other retail experts warn that consumers are pulling back from discretionary spending. Known for its varied product assortment that lends itself to discretionary spending, Target reported a 5.4% decline in store sales, a 4.3% slide in sales comps and a 10.5% drop in digital sales for the period ending July 29.

[Read more: “Ahold Delhaize Q2 Sales Show Strong U.S. Market Share Gains”]

Target also posted a revenue drop for the first time in six years during the second quarter, a period that was partly marked by controversy about its Pride-themed collection. Total revenue decreased 4.9% on a year-over-year (YoY) basis) to $24.77 million from $26.03 million and fell 2.2% to $50.09 million from $51.20 million during the first six months of the fiscal year.

As shoppers rein in spending on non-essentials, Target’s grocery categories proved hardy. Growth in food and beverage and essentials and beauty partially offset declines in discretionary categories, the company shared. The retailer also had strong seasonal assortments for Mother’s Day and the Fourth of July, and launched more than 100 private label Good & Gather products for the summer.

In another brighter spot, Target’s operating income hit $1.2 billion and its operating income margin rate rose 3% to 4.8% compared to July 2022, driven by a higher gross margin rate. Adjusted earnings per share (EPS) came in at $1.80, four times higher on a YoY basis and reflecting the company’s efforts to fix major inventory problems that affected last year’s performance.

Chair and CEO Brian Cornell addressed the mixed quarterly report. “Our second quarter financial results clearly demonstrate the agility of our team and the resilience of our business model, as we saw better-than-expected profitability in the face of softer-than-expected sales. With the benefit of a much-leaner inventory position than a year ago, the team was able to quickly respond to rapidly changing topline trends throughout the second quarter, while continuing to focus on the guest experience," he said.

"As we move into the fall, the team is gearing up for the biggest seasons of the year, with a focus on continuing to serve our guests with newness throughout our assortment,” Cornell continued. "At the same time, we continue to take a cautious approach to planning our business, and have therefore adjusted our financial guidance in anticipation of continued near-term challenges on the topline. This approach, along with the long-term investments we're making in our business and strategy, position us to deliver sustainable, profitable growth in the years ahead."

Target’s adjusted financial guidance now points to sales comps in a broad range of a mid-single digit decline for the rest of FY2023. The outlook for the full-year adjusted EPS is now between $7 and $8, compared to the prior projection of $7.75 to $8.75.

Minneapolis-based Target Corp. is No. 6 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America, with nearly 2,000 locations. PG also named the company as one of its Retailers of the Century.