Consumers were cautious again in the latest quarter report from Target Corp. on Wednesday. At least the company has pickleball, advertisers, and Taylor Swift.
During the big-box store’s earnings call, managers tried to focus on the smaller areas where things were still going well. With the help of an exclusive edition of Taylor Swift’s new album “The Tortured Poets Department,” sales in its entertainment category went up by “high-single digits.”
The business TGT, -0.60% also said that its partnership with Prince, a maker of sports gear, “delivered incredible sales momentum in all things pickleball.” This is because pickleball courts have become much more common in cities. It also said that its short-term partnership with designer Diane von Furstenberg was paying off.
Roundel, the part of Target’s business that helps brands sell ads through the store’s online ecosystem, was another bright spot. Executives said it was the “fastest-growing part of our business” at the moment. The chain also said that online sales went up for the first time in more than a year. Online orders for pickup and delivery helped with this. During the quarter, sales of beauty products went up by low single digits. This was due in large part to high demand for Ulta Beauty Inc.’s (ULTA, 0.20%) products.
And executives said that gross margins went up a little during the quarter as the effect of “shrink,” or inventory losses due to theft, fraud, or error, lessened. This is after complaining about theft in its stores last year. Over the past year, there has been a lot of heated discussion about how theft affects the retail business.
“We continue to believe that shrink rates are positioned to reach a plateau this year based on our recent physical inventory counts,” Target Chief Financial Officer Michael Fiddelke said during the call. “And in Q1, the results of those inventory counts were favorable versus our expectations.”
TJX stock was down 8.2% on Wednesday. In the past year, the stock has gone down 2.8%.
Many people are still dealing with the effects of higher prices and interest rates, which is why they don’t want to buy clothes, home goods, and other things that take up a lot of shelf space at Target. Many people with more money shop at Walmart Inc. WMT, 0.30%, while Target said this week it would lower the prices of about 5,000 items.
Target said on Wednesday that it thinks same-store sales will stay the same or go up by 2% in the second quarter and for the whole year. On the call, executives said they hoped for a bigger recovery in the summer and when kids went back to school.
Even though sales of clothes still went down, it wasn’t as bad as in previous quarters. Target’s own clothing lines and its off-the-rack selection, as well as new items, which other stores are also focusing on, all helped.
Chief Growth Officer Christina Hennington said during the call, “Without a doubt, consumers are responding to newness.” “What drives them to buy is when they see new ideas and when they see that at a great price.” So, our growth in the percent of new things has just gotten faster quarter after quarter.
Wall Street still didn’t have a clear picture of the store’s big picture.
“Profitability continues to improve [year over year], but it is still below pre-COVID levels, and it is unclear when comp sales and market share gains will start to rise again,” Roth MKM analyst Bill Kirk wrote in a research note.
But Michael Baker, an analyst at D.A. Davidson, wrote in a note on Wednesday that he was more interested in the rebound.
He said, “The stock has now lost all of the 12% gain that it had after the March analyst day.” “Because estimates aren’t likely to change, the stock is now trading below its value.” We think this is a good time to buy because comps are about to turn positive and margins are still getting better.
