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Target earnings miss the mark as inflation-battered shoppers avoid buying things they don't really need

Target (TGT) missed the earnings mark in the first quarter.

Blame inflation-battered US households, its execs say.

The "biggest challenges" Target is hearing about from its shoppers are "inflation in food and household essentials," chairman and CEO Brian Cornell said on a call with reporters detailing first quarter results.

Cornell added that inflation is putting a "strain on the consumer wallet."

Target shares fell 7.97% by the close of trading Wednesday on the heels of the results.

Cornell went on to say sales trends are "normalizing" in categories where inflation has eased.

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The strain weighed most heavily on Target's bread and butter — physical stores — where traffic and the number of transactions fell in the quarter.

The expansive supercenters continued to see sales weakness in discretionary departments such as home goods.

As a result of the store sales slump, Target CFO Michael Fiddelke says the company is planning the business "conservatively" for the balance of the year.

"We anticipate fiscal 2024 consensus is likely to remain largely unchanged, though Target shares could underperform given EPS/operating income slightly below consensus and generally heightened expectations, including better-than-feared results in recent quarters," said Stifel analyst Mark Astrachan following the earnings release.

To right the ship and close the gap with better-performing rival Walmart (WMT), Target unveiled a plan on Monday to slash prices on 5,000 items like milk, meat, and bread.

The company has already lowered prices on about 1,500 items, and this will continue into the summer.

  • Net sales: -3.1% year over year to $24.5 billion, vs. estimates for $24.13 billion

  • Gross profit margin: 27.7% vs. 26.3% a year ago, vs. estimates for 27.4%

  • Diluted EPS: -1% year over year to $2.03, vs. estimates for $2.05 (guidance: $1.70 to $2.10)

  • Comparable sales: -3.7% year over year (last year it rose 0.7%; Walmart reported a 3.8% gain in the first quarter of 2024) vs -3.68% estimate

    • Digital comparable sales: 1.4%

    • Store comparable sales: -4.8%

  • Inventory fell 7% from the prior year.

  • The company once again didn't repurchase any of its stock in the quarter, despite having $9.7 billion left on a prior buyback authorization.

  • Both the number of transactions and average check size declined 1.9% in the quarter.

  • Target ended the quarter with almost $3.6 billion in cash.

  • Second quarter earnings per share are projected to be $1.95 to $2.35, vs. estimates for $2.19.

    • Comparable sales for the quarter are seen unchanged to up 2%.

  • Full-year earnings per share are projected to be $8.60 to $9.60 (reiteration of prior guidance), vs. estimates for $9.43.

One weapon Target doesn't have in its arsenal is a cloud services business that could fund retail investments, like rival Amazon (AMZN). Amazon Web Services CEO Adam Selipsky joined for a new episode of the Opening Bid podcast to share what AWS is up to next. Listen in below.

Brian Sozzi is Yahoo Finance's Executive Editor. He is also the host of the "Opening Bid" podcast. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com. Are you a CEO and want to come on Yahoo Finance Live? Email Brian Sozzi.

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