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- Retail Stocks Beating Estimates: Target
Retail Stocks Beating Estimates: Target
Shares of Target Corporation (TGT) had a surprisingly successful run on November 15. The North American retail giant added more than 13.5% to its market value immediately after the company reported its Q3 results, which far exceeded Wall Street's forecasts as well as average indications in profit lines for the six previous quarters. The stock's price jumped from a $110 area to above $125 even before the opening bell for the regular trading session on NYSE.
This may actually mark the first great leap forward for the stock, which was the market's favourite over the two pandemic years of 2020-2021, yet later was kept on starvation rations in the investment sense, after it shed all the gains in the subsequent period. Dual positioning of the chain’s business in the middle of consumer discretionary and the economy segment makes the company move on to proper solutions when purchasing power of many households is weak.
Thanks to an increasingly disciplined cost management, financial metrics improved to show a 4.9% YoY decline in comparable (same-store) sales, instead of an averagely feared 5.2% drop. The quarterly revenue was 2.4% better QoQ, almost reaching the seasonal level of 2021, while the earnings per share (EPS) of $2.10 was 16.7% higher than in Q2 2023 and 36.3% higher if compared to the previous mid-November report in 2022. Target's free cash flow of $807 million was a positive sign after -$1.20 billion in Q3 2022, while the number of the chain's stores added 15 new locations YoY to reach 1,956.
Brian Cornell, CEO of Target Corporation noted that his team successfully navigated through "a very challenging external environment". "While third quarter sales were consistent with our expectations, earnings per share came in far ahead of our forecast," he added, citing the reasons like commitment to efficiency, well-organized work with inventories, investments in quality assortment and convenience for a suburban consumer who is looking for a wide range of products under one roof at competitive prices. Drive-Up services saw a 12% increase, as an example. All in all, a 14% decrease in inventory levels and a solid 19% reduction in discretionary category inventory are good signs, as well as setting its Q4 EPS guidance of $2.25 and repurchasing its stocks for $9.7 billion in a fresh buyback program.
Even though e-commerce marketplaces may represent a threat for retail business as usual, Target Corp is probably among those smart businesses, which have an experience to face the challenges. So, further bounce by at least $5-7 above this summer high at $138.28 (July 27, 2023) could be expected.
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