Target (TGT) is scheduled to report results of its second quarter before the market open on Wednesday, August 17, with a conference call scheduled for 8:00 am EDT. What to watch for:
GUIDANCE: In June, Target said it still expects 2022 revenue growth to be in the low- to mid-single digit range, but that its second quarter operating margin rate will be in a range around 2%. The company previously guided Q2 operating margin "in a wide range centered around first quarter's operating margin rate of 5.3%." For the back half of the year, Target said it expects an operating margin rate in a range around 6%, a rate that would exceed the company's average Fall season performance in the years leading up to the pandemic.
PLANS TO REDUCE EXCESS INVENTORY: Also in June, Target said it would take additional markdowns, along with removing excess inventory and canceling orders to rightsize its stock levels. Target said the moves were intended to “create additional flexibility to focus on serving guests in a rapidly changing environment” as well as “further build on the Company’s record of growth and market-share gains.”
“We thought it was prudent for us to be decisive, act quickly, get out in front of this, address and optimize our inventory in the second quarter — take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest relevant with our assortment,” CEO Brian Cornell said in an interview with CNBC.
'TRIFECTA OF PRESSURES': JPMorgan analyst Christopher Horvers raised the firm's price target on Target to $190 from $180 and keeps an Overweight rating on the shares. The "earnings revision curve continues to deteriorate" for most of retail, with the "trifecta of pressures" on the consumer -- inflation, wallet normalization, and slowing housing -- colliding with lapping two years of abnormal full price selling and rising cost pressures, Horvers tells investors in a research note. Reactions to downward estimate revisions "have been more positive lately," which encourages companies to take down guidance, says the analyst.
INVESTORS 'TOO PESSIMISTIC': Wells Fargo analyst Edward Kelly upgraded Target to Overweight from Equal Weight with a price target of $195, up from $155. Target's selloff provides the opportunity to pick up "a proven share gainer into an underappreciated earnings recovery at the right price," the analyst argues. Kelly believes the company deserves some criticism for its inventory missteps, but it's not alone and management's decisive action should help protect pandemic share gains. Target took the earliest and biggest margin hit in retail, suggesting relatively lower risk from here and a faster recovery, he adds. The analyst also thinks investors seem "too pessimistic" on recovery earnings. Overall, Keely sees favorable risk/reward and projects upside to $220 in a reasonable bull case.
WALMART EARNINGS: Competitor Walmart (WMT) on Tuesday posted stronger than expected earnings, with EPS up 5.6% and revenue up 8.4% from last year. Walmart reiterated its forecast for the back half of the year, saying it expects same-store sales for Walmart U.S. to grow by about 3%, excluding fuel, for the second half of the year, or about 4% for the full year, and expects adjusted EPS to decline 9%-11% for the full year.