On Wednesday, Target Corporation significantly raised its full-year earnings outlook, buoyed by strengthening trends across discretionary categories. The report for the fiscal second quarter revealed results that not only exceeded market expectations but also displayed an impressive trajectory of sales recovery post-pandemic.
Adjusted earnings are now projected to fall between $9.00 and $9.70 per share for the fiscal year 2024, up from the previous forecast range of $8.60 to $9.60. This upward revision comes as a result of the retailer's solid profit achievements during the first half of the fiscal year, with consensus estimates from Capital IQ reflecting normalised EPS at $9.32.
In a strong premarket reaction, Target's shares surged by 15%. In terms of sales forecasts, Target anticipates comparable sales growth to settle within the lower end of its previous guidance, expecting an increase ranging from flat to 2%, while analysts on Wall Street project a modest rise of 0.4%.
Particularly noteworthy was Target's adjusted EPS leap to $2.57 for the quarter ending August 3, up from $1.80 the same quarter last year, significantly outperforming analysts' expectations which were set at $2.18. Furthermore, total revenue for the quarter advanced by 2.7%, reaching $25.45 billion, surpassing the market's anticipations of $25.21 billion. The company's comparable sales climbed by 2%, exceeding the 0.9% growth anticipated by analysts, as the total number of transactions rebounded by 3% against a prior year decline of 4.8%.
Chief Executive Brian Cornell commented, "Our growth was driven entirely by traffic in stores and our digital channels, with double-digit growth in our same-day delivery services. We also saw improving trends across our discretionary categories, most notably in apparel, and we're seeing continued strength in beauty." Additionally, Target's gross margin saw an increase to 28.9%, up from 27% in the prior-year quarter.
This uptick was largely attributed to cost improvements that successfully outweighed the effect of heightened promotional markdowns. However, the selling, general and administrative expenses expanded to $5.39 billion from $5.18 billion year-on-year. These better-than-expected margins and earnings are expected to enhance investor confidence regarding Target's potential to exceed an earnings-before-interest-and-taxes margin surpassing 6%, as noted by Truist Securities in a recent client communication.
Nonetheless, Truist cautioned that Target continues to experience market share erosion, highlighting ongoing 'incrementally negative stacked traffic.' Currently, Truist maintains a hold rating on the stock. Looking ahead, Target projects adjusted earnings per share for the current quarter to range between $2.10 and $2.40, while analysts forecast an average of $2.24.
In terms of sales, comparable store sales are predicted to be flat or increase by 2%, contrasting with market expectations of a same-store sales growth of 1.6%. The company's stock price currently stands at $164.55, reflecting a change of +21.34 and a percent change of +14.90..