Target Q3 Results Miss Estimates, While TJX Adj. EPS Top Estimates

(RTTNews) - Discount retailer Target Corp. (TGT) reported Wednesday that third-quarter net profit halved from last year, reflecting a 330 basis points drop in gross margins, driven primarily by markdowns in an increasingly challenging environment. Both earnings per share and quarterly revenues also missed analysts' estimates. The retailer also provided comparable sales guidance for the fourth quarter.

In pre-market activity on the NYSE, Target shares were plummeting $25.68 or 14.35 percent to trade at $153.30.

Off-price retailer TJX Cos. Inc. (TJX) reported an increase in net profit for the third quarter, primarily due to lower provision for income taxes, despite a 3 percent drop in revenues, which also missed estimates. However, adjusted earnings per share topped estimates. TJX also raised its earnings guidance for the full-year 2023.

Target reported that its third-quarter net earnings halved to $712 million or $1.54 per share from $1.49 billion or $3.04 per share in the year-ago quarter.

On average, 26 analysts polled by Thomson Reuters expected the company to report earnings of $2.13 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenue for the quarter grew 3.4 percent to $26.12 billion from $25.29 billion in the same quarter last year, driven by total sales growth of 3.3 percent and a 9.5 percent increase in other revenue. Analysts expected revenues of $26.38 billion for the quarter.

Total comparable sales grew 2.7 percent in the quarter, on top of 12.7 percent growth last year. The growth reflected 1.4 percent traffic growth and and a 1.3 percent increase in average ticket.

Comparable store sales growth was 3.2 percent and comparable digital sales growth was 0.3 percent.

"In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty," said Brian Cornell, Chairman and CEO of Target.

Gross margin rate declined 330 basis points to 24.7 percent, reflecting higher markdown rates, inventory shrink, and merchandise and freight costs, net of retail price increases, compared to last year.

Looking ahead, the company believes it is prudent to plan for a wide range of sales outcomes in the fourth quarter, centered around a low-single digit decline in comparable sales, based on softening sales and profit trends that emerged late in the third quarter and persisted into November.

The company also announced an enterprise-wide initiative to simplify and gain efficiencies across its business with a focus on reducing complexities and lowering costs, representing an estimated cumulative savings opportunity of $2 billion to $3 billion over the next three years.

Meanwhile, off-price retailer TJX reported that net income for the quarter grew to $1.06 billion or $0.91 per share from $1.02 billion or $0.84 per share in the prior-year quarter.

Excluding a $0.05 per share tax benefit related to the divestiture of the Company's minority investment in Familia, adjusted earnings for the quarter was $0.86 per share. Analysts expected earnings of $0.80 per share for the quarter.

Net sales for the quarter decreased 3 percent to $12.17 billion from $12.53 billion in the same quarter last year, and missed analysts' consensus revenue estimate of $12.30 billion. U.S. comp store sales decreased 2 percent.

Comp store sales at Marmaxx increased 3 percent, driven by a strong increase in its apparel business sales, and Marmaxx sales grew 3 percent to $7.46 billion.

Meanwhile, comp store sales at HomeGoods declined 16 percent and HomeGoods sales also decreased 14 percent to $1.95 billion.

TJX Canada sales edged down 1 percent to $1.29 billion and TJX International (Europe & Australia) sales declined 16 percent to $1.48 billion from last year.

Looking ahead to the fourth quarter, the company expects earnings in a range of $0.85 to $0.89 per share on U.S. comparable store sales of between flat and up 1 percent, compared to the prior forecast for earnings in the range of $0.92 to $0.96 per share on U.S. comparable store sales of between flat and down 1 percent. Analysts expect earnings of $0.94 per share for the quarter.

For fiscal 2023, the company now projects earnings in a range of $2.93 to $2.97 per share and adjusted earnings in range of $3.07 to $3.11 per share on comp sales decline of 1 to 2 percent.

Previously, the company expected earnings in the range of $2.87 to $2.95 per share and adjusted earnings in the range of $3.05 to $3.13 per share on comp sales decline of 2 to 3 percent.

The Street is looking for earnings of $3.10 per share for the year.

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