Target continues to struggle, but plan is working

The Fourth of July holiday and Target Circle Week, a rival to Amazon Prime Day, failed to lift Target’s second quarter results. The retailer suffered in many categories and has pulled back on projections for the year, reports CNBC.

Target is expecting comparable sales to decline by mid-single digits for FY 2023 and earnings per share to sit in the $7-$8 range. Earlier in the year the company was looking at a comparable sales hit in the low single digits and earnings per share to be anywhere from $7.75 to $8.75.

Target competitor Walmart will announce financial earnings tomorrow, and insiders believe the numbers will be much better.

However, Walmart has a bigger presence in grocery, while Target continues to rely on non-essential items. Target CEO Brian Cornell said the second half of the year could be turbulent with rising interest rates, student loan payments resurfacing, and continued inflation.

“As we look at the consumer landscape today, we recognize the consumer is still challenged by the levels of inflation that they’re seeing in food and beverage and household essentials,” Cornell said during the call. “So that’s absorbing a much bigger portion of their [family] budget.”

It was not all bad news for Target, as the retailer’s net income beat projections — $835 million compared to $183 million in Q2 2022. Inventory levels also looked better.

Related:Target rolling out Starbucks to-go option at curbside pickup

“We had talked about this year being a really important year in terms of building back the profitability of the business, and for the team to take a big step forward in the second quarter in spite of softer-than-expected sales is really great progress on that journey,” Target Chief Financial Officer Michael Fiddelke said.

However, comparable sales for online sales and stores open at least 13 months dropped 5.4% year-over-year. Projections had that figure at 3.7%. In-store comparable sales declined 4.3% and digital comparable sales were down 10.5% vs. Q2 2022.

Sales were down in May and June before rebounding in July thanks to the Fourth of July and Target Circle Week.

Also helping Target manage the quarter were cheaper freight costs, reduced supply chain and online fulfillment expenses, increased retail prices, and lower markdowns.

Shrink inventory caused by continued theft is still hurting the retailer. Earlier in the year, Cornell said shoplifting was going to cost $500 million in lost profit.

Target plans on continuing to lean on grocery more as the year winds down. Investing in more grocery helped the company in the second quarter as sales in snacks, candy, and beverages were strong.

Health and beauty sales were also encouraging. Target also announced last week that Starbucks will be available for curbside pickup at over 1,700 stores 

“We’re gonna play the long game,” Target Chief Growth Officer Christina Hennington said. “We don’t carry our assortment for a moment in time, but we’re going to lean into the kinds of things that have made Target Target.”