Target Beats Q2 Views But Shares Down As Year-Over-Year Sales Comps Fall

Target NYSE: TGT opened lower following a second-quarter report that beat Wall Street views. Shares rebounded somewhat in the hours following the open, allowing the stock to make up a bit of lost ground.  

Shares were trading at $249.69 in the afternoon trade. That was a decline of 1.95%, or $4.96. 

However, as we’ve seen recently with many leading stocks, the devil was in the details. Growth of online and in-store sales both slowed. 

Target earned $3.64 per share, a gain of 8% over the year-earlier quarter. Revenue was $25.2 billion, up 10%. Analysts expected $3.51 per share on revenue of $24.989 billion, so Target beat on both the top and bottom lines.

Same-store sales grew 8.9%, slightly above views for an 8.8% increase. Even so, that was down dramatically from the first quarter’s same-store sales growth of 22.9%, due to easy year-over-year comparisons over the pandemic lockdowns in the first half of 2020. 

That decline in overall growth was due to in-store comp sales, which grew 8.7%, a reduction from the previous quarter’s 18% growth rate. Meanwhile, digital comparable sales were up 10%, a decline of 80% from a year ago. 

Those declines are what shook out some investors Tuesday. 

In better news for investors, the Minnesota-based retailer said it would initiate a new stock buyback program to the tune of $15 billion. 

Chief financial officer Michael Fiddelke addressed the strategic implications of the buyback in the earnings release, saying, "For decades, Target's capital deployment priorities have remained the same: First, we fully invest in our business, in projects that meet our strategic and financial criteria.  Then, we return capital to our shareholders through a thoughtful balance of dividends and share repurchases, within the limits of our middle-A debt ratings.” 

“This new authorization reflects our confidence in the sustained, strong performance of our business, which will enable continued share repurchases in keeping with our long-standing capital deployment goals,” he added. 

The company repurchased $1.5 billion in shares in the second quarter, retiring 6.6 million shares of common stock at an average price of $233.81.  At the quarter’s end, Target had approximately $1.8 billion of remaining capacity under that repurchase program, which the board OK’d in September 2019.  

Looking ahead, the company guided toward high single-digit growth in comparable sales for the second half of 2021. It expects that growth to come in near the high end of the previous guidance range.

The company now expects its full-year operating income margin rate to be 8% or more.  

In its previous earnings report, Target guided toward single-digit comp sales growth in the second half of this year. 

Turning to Target’s chart, the stock has been a leader in the retail space, with price action outpacing other strong large-cap performers such as Costco NASDAQ: COST and Walmart NYSE: WMT.

All three companies, deemed essential during the early stages of Covid lockdowns, did well during the pandemic. Meanwhile, all grew their e-commerce capabilities to address stay-at-home orders. 

Target has a market cap of $124.28 billion. It comprises 0.33451% of the S&P 500. As such, it would tend to move along with the broader index, more than it would lead any index-wide moves. 

Target cleared a double-bottom base on March 26, surpassing the base’s mid-point of $196.25 as it gapped up in heavy volume. From there, the stock rallied, holding well above its 50-day moving average.

Tuesday marked the first time since mid-March that the stock fell below its 50-day line. However, as of mid-session Tuesday, Target was trading 0.8% above that line. It was still beneath its 10- and 21-day averages.  

The current pullback appears to be the stock’s first base since the double bottom, which began forming in January. At this juncture, it’s impossible to tell whether the stock will continue falling into a steeper shakeout, or if it will rebound relatively soon. 

Shares climbed 22% in the past three months, 45.53% year-to-date and 86.83% in the past 12 months.