Target Corp. shares soared after it reported third-quarter earnings that outpaced forecasts, reflecting fewer markdowns and better inventory management as the US big-box retailer recovers from its recent profit-busting pileup of merchandise.
Earnings per share, excluding some items, beat Wall Street’s estimates thanks largely to a 14% decline in inventory from a year earlier. Comparable sales fell 4.9%, a second straight quarterly drop driven by lower spending on discretionary categories. That decline, the second largest since 2009, was still less than analysts expected.
Sales weakness was partially offset by strong performance in “frequency” categories like beauty, which are more likely to fuel repeat purchases. Target has an in-store partnership with Ulta Beauty, and added products from Rihanna’s Fenty Beauty collection in the third quarter.
Shares rose 15% in Wednesday premarket trading in New York. The stock had fallen 26% for the year through Tuesday’s close. The S&P 500 index has gained 17%.
“This consumer has been facing a number of headwinds for months and months now, but we’re seeing great resiliency,” Chief Executive Officer Brian Cornell said on a call with reporters.
Food sales fell slightly in the quarter due to a decline in average prices, Chief Growth Officer Christina Hennington said on a call with media.
Gross margin of 27.4% exceeded forecasts for the third quarter and improved from a year ago, which Target attributed to the inventory improvements as well as lower costs for freight and digital fulfillment. Supply-chain costs also fell.
Theft, which the company cited for store closures in September, remains a pressure point for Target. The retailer said higher levels of shrink — an industry term that refers to merchandise lost due to theft, damage and vendor error — partially offset margin improvements in other areas. The company didn’t give more details.
In the current quarter, Target sees earnings per share in a range of $1.90 to $2.60, while the average analyst estimate is $2.23, according to data compiled by Bloomberg.
Cornell said the company is watching the impact of rising interest rates, the renewal of student-loan payments and higher credit-card balances. He added that there’s no single factor that’s a primary contributor to shifts in consumer behavior.
(Updates with share move.)
