Target Q2 Profit Misses Estimates

Target Corp. (TGT) reported that its second quarter adjusted EPS decreased 89.2 percent from a year ago. Operating income margin rate was 1.2 percent, compared with 9.8 percent, last year. Gross margin rate was 21.5 percent, compared with 30.4 percent. The company said its gross margin rate reflected higher markdown rates, driven primarily by inventory impairments and actions taken to address lower-than-expected sales in discretionary categories, as well as higher merchandise, inventory shrink, and freight costs. Also, gross margin rate was pressured by increased compensation and headcount in distribution centers, the costs of managing excess inventory, and higher per-unit last-mile shipping costs.

Comparable sales grew 2.6 percent, for the quarter, which reflected 2.7 percent traffic growth. Store comparable sales increased 1.3 percent, while Digital comparable sales grew 9.0 percent. More than 95 percent of the company's second quarter sales were fulfilled by its stores.

Brian Cornell, CEO of Target Corporation, said: "I want to thank our team for their tireless work to deliver on the inventory rightsizing goals we announced in June. While these inventory actions put significant pressure on our near-term profitability, we're confident this was the right long-term decision in support of our guests, our team and our business."

Second quarter adjusted EPS was $0.39 compared to $3.64, last year. Analysts on average had expected the company to earn $0.71 per share, according to figures compiled by Thomson Reuters. Analysts' estimates typically exclude special items.

Bottom line came in at $183 million, or $0.39 per share compared with $1.82 billion, or $3.65 per share, prior year.

Revenue for the quarter rose 3.3% to $25.65 billion from $24.83 billion last year. Analysts on average had estimated $26.04 billion in revenue.

Looking forward, the company said current trends support its prior guidance for full-year revenue growth in the low- to mid-single digit range, and an operating margin rate in a range around 6% in the back half of the year.

Shares of Target Corp. are down 3% in pre-market trade on Wednesday.

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