Shares of Target (TGT) are rising this morning after the big-box retailer reported a gain of $1.80 per share, beating estimates while missing on revenue. Yahoo Finance Executive Editor Brian Sozzi joins the Live show to check out Target's profitability as it cuts its full-year forecast and contends with softening sales figures.
This post was written by Luke Carberry Mogan.
Video Transcript
- Shares of Target seeing a big boost in the premarket today.
This after a strong beat on EPS.
That offset those weaker than expected sales in the second quarter.
CEO Brian Cornell noting the company saw better than expected profitability despite sagging sales, but the company reiterated a cautious outlook for the year ahead, lowering its full year guidance in anticipation of quote "near-term challenges from current trends."
Yahoo Finance's own executive editor Brian Sozzi joins us now to discuss.
So yeah.
Brian, one of the things that stood out to me was that caution over sales and the forecast there.
BRIAN SOZZI: Only in bizarro retail analysis or Wall Street analysis do you get the market reaction we're seeing with Target here today.
First, you have a company coming out here lowering the bottom end of their guidance by $0.75, taking down the top of their end of their guidance by $0.75, and the stock price is up.
Why is the stock price up?
Twofold.
One, you now have analysts already-- some of the notes that I've seen coming into my box already looking for guidance for 2024.
And maybe you see a sales recovery next year-- look, I get it.
This is how Wall Street thinks.
And number two-- across the same lines of this crazy Wall Street thinking-- that the guidance cut, even though it's caught by $0.75, wasn't as bad as feared.
I get it.
But I was on a call with Brian Cornell, the CEO of Target and the CFO of Target, Michael Fiddelke.
I heard the caution in their tone.
I think they're concerned about how the back to school shopping season is shaping up.
Cornell said it started solid, but that really rings hollow to me when you see a company really come out here and issue third quarter guidance that is well below consensus estimates, and telling you that consumers are fearful about spending as student loan repayments resurface and because of higher [?
gas ?]
prices.
Whatever it is, this was not a good quarter for Target.
I understand why the market's rallying here, why that market for Target shares are rallying, but that's a tough sell after the numbers I'm seeing on this company.
- It is.
And that's the thing that stood out to me.
The caution when you have an executive because they usually try to kind of paint a robust picture, especially when they're on their earnings call.
But to issue that concern, especially when you're coming into kind of the year-end-- these are big seasons for retailers.
When you're talking about back to school, then heading into the holiday shopping season.
It should be a boon for retailers, but you have one like Target, which in some respect-- it's not necessarily the high end consumer, but it reflects a consumer who is striking a more cautious tone, and it flies in the face of the things that we've heard about the strength and resilience of the consumer.
- Yeah.
And a few things that, when we were looking at the stock price reaction, my mind jumped to are investors thinking that there's a bottom set in at least in some of those discretionary categories that they called light to as well in this report this morning.
BRIAN SOZZI: I hear what you're saying.
My first read off of this was, wow, when Walmart reports earnings tomorrow, they are probably going to beat on earnings and maybe issue in-line guidance and the stock could react favorably.
This is a company in Walmart that has come out the past six months, become more aggressive on price points.
I think that's impacting Target.
But what Walmart has seen, they are gaining that higher income shopper.
That income shopper and-- $100,000 in an inflationary environment we've been dealing with the past two years and you have two kids, that is not high income.
I know it says $100,000, but that doesn't mean you're loaded.
And you're looking for deals just like the next person out there.
And I think they're finding those deals in are better assortment at Walmart.
Now, having said all that, Target, best in class retailer.
I think they will get their act together, but they need the economy to improve to start to show that it is getting this act together.
- They did have one bright spot.
Beauty.
That was a bright spot.
BRIAN SOZZI: Beauty.
- Sorry, I had to.
I mean, they did.
It was and-- BRIAN SOZZI: And groceries were a bright spot too, but for Target stock to work, you have to see home goods doing well.
You have to see discretionary departments doing well because when that happens, margins go up, their profits go up, and analysts raise their ratings and their price targets on the stock.
- Or they have to lean into the grocery play, which they've been doing a little bit more of.
BRIAN SOZZI: I get all my groceries at Target.
I like Target.
- I do not get all my groceries at Target BRIAN SOZZI: What?
- I'm sorry.
BRIAN SOZZI: You've got to go down there.
- So I'm not a big fan of Walmart, but if I'm doing groceries, I'd rather go there because they have a bigger assortment.
BRIAN SOZZI: I actually got some great fish at Target.
I have to give them a shout out.
Fish, fresh salmon at Target.
I'm all about it.
12 bucks a pop.
- Fresh?
BRIAN SOZZI: Sign me up.
Oh, it's fresh.