Target (TGT) stock took a nosedive Wednesday after the discount retailer's first-quarter earnings came up short of expectations amid a tough consumer spending environment.
In the three months ended May 4, Target's sales decreased 3.2% year-over-year to $24.5 billion, driven by weak sales in its discretionary categories. Its earnings per share (EPS) declined 1% from the year prior to $2.03.
"Our first-quarter financial performance was in line with our expectations on both the top and bottom line, tracking the trajectory we outlined for this year and setting up a return to growth in the second quarter," Target CEO Brian Cornell said in a statement. "Our topline performance improved for the third consecutive quarter, with growth in our digital business led by strength in our same-day fulfillment services."
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While the results met Target's guidance for the quarter, they were mixed when it came to analysts' expectations. According to Yahoo Finance, Wall Street was anticipating in-line sales of $24.5 billion and slightly higher earnings of $2.05 per share.
For the second quarter and full year, Target said it expects EPS in the range of $1.95 to $2.35 and $8.60 to $9.60, respectively. These estimates are in-line with Wall Street's estimates, which currently call for EPS of $2.19 and $9.43, respectively.
Cornell added that the company is pleased with the early results from the relaunch of Target Circle, which brought 1 million new customers to its platform in its first quarter.
Despite the reiterated full-year guidance and upbeat commentary from the company's CEO, it's worrying that "both foot traffic and same-store sales were measurably lower," said Brian Mulberry, client portfolio manager at Zacks Investment Management. "Also, when customers did visit stores they spent 1.9% less. Looking ahead, these consumer trends do not add up to a confident story when it comes to earnings consistency."
Is Target stock a buy, sell or hold?
Analysts are generally upbeat toward the consumer staples stock. According to S&P Global Market Intelligence, the consensus analyst target price for TGT stock is $184.30, representing implied upside of roughly 28% to current levels. Meanwhile, the consensus recommendation is Buy.
BofA Securities analyst BofA Securities analyst Robert Ohmes maintained a Buy rating on the blue chip stock after earnings.
"While near-term sales remain pressured, we believe TGT's focus on value positions it well for share gains going forward," Ohmes says. "Recently announced price investments, changes to the Target Circle 360 rewards program, and several new Owned Brand launches focused on value and entry-level price points should support an improving value perception."
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