Why Is Target (TGT) Down 7.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Target (TGT). Shares have lost about 7.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Target due for a breakout? Well, first let's take a quick look at the latest earnings report in order to get a better handle on the recent catalysts for Target Corporation before we dive into how investors and analysts have reacted as of late.

Target Q2 Earnings Miss Estimates, Comparable Sales Decline Y/Y

Target Corporation reported second-quarter fiscal 2025 results, with revenues and earnings declining from the prior-year period. The top line surpassed the Zacks Consensus Estimate, while the bottom line fell short. Also, the company witnessed a decline in comparable sales.

While results reflected ongoing headwinds in consumer demand and operational pressures, Target delivered sequential improvements, aided by stronger store traffic, disciplined expense management and continued digital momentum.

Digital comparable sales advanced 4.3% year over year, driven by over 25% growth in same-day delivery through Target Circle 360 and sustained momentum in Drive Up services.

Target’s Quarterly Performance: Key Metrics & Insights

Target reported adjusted earnings of $2.05 per share, which missed the Zacks Consensus Estimate of $2.09 and declined 20.2% from $2.57 reported in the year-ago period.

The big-box retailer generated total revenues of $25,211 million, which topped the Zacks Consensus Estimate of $24,911 million. The metric fell 0.9% on a year-over-year basis. We note that merchandise sales declined 1.2% to $24,719 million, while non-merchandise sales grew 14.2%, supported by Roundel advertising, membership and marketplace revenues.

Meanwhile, comparable sales decreased 1.9%, following a 3.8% decline in the preceding quarter. The metric reflected a decline of 3.2% in comparable store sales but an increase of 4.3% in comparable digital sales. 

Traffic or the number of transactions dipped 1.3%, while the average transaction amount slid 0.6%. 

The gross margin contracted 100 basis points to 29%, pressured by higher markdown activity, purchase order cancellation costs and category mix, partially offset by reduced inventory shrink and increased advertising and non-merchandise revenues. The operating margin shrank 120 basis points to 5.2% from 6.4% in the corresponding period last year.

Target’s Financial Health Snapshot

Target ended the second quarter with cash and cash equivalents of $4,341 million, long-term debt and other borrowings of $15,320 million, and shareholders’ investment of $15,420 million. During the quarter, Target paid out dividends of $509 million.

The company did not repurchase any shares during the quarter. At the end of the period, Target had about $8.4 billion remaining under the repurchase program approved in August 2021.

A Sneak Peek Into TGT’s FY25 Outlook

Target reaffirmed its fiscal 2025 guidance. It continues to expect a low-single-digit decline in sales. Adjusted earnings are projected in the band of $7.00-$9.00 per share, while GAAP earnings per share are anticipated in the range of $8.00-$10.00.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a upward trend in fresh estimates.

VGM Scores

At this time, Target has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, Target has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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This article originally published on Zacks Investment Research (zacks.com).

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