Target Corp. topped first quarter estimates, but warned shrink would take an additional $500 million bite out of its annual earnings.
Still the discounter maintained its full-year guidance and is trying to keep agile a tough year for consumer-oriented companies.
Brian Cornell, chair and chief executive officer, said: “We came into the year clear-eyed about the challenges consumers are facing, and we were determined to build on the trust we’ve established with our guests. It’s required agility and the ability to flex across our multi-category portfolio as we lean into value and the product categories our guests need most right now. Thanks to the team’s dedication, we saw an increase in guest traffic in Q1, with total sales increasing and profitability ahead of expectations.”
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Net earnings for the first quarter fell 5.8 percent to $950 million, or $2.05 a diluted share, from $1 billion, or $2.16, a year earlier.
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Earnings per share easily topped estimates, coming in 28 cents ahead of the $1.77 analysts projected, according to FactSet.
Revenues for the three months ended April 29 increased 0.6 percent to $25.3 billion and fractionally better than analyst estimates. Strength in what the company calls “frequency businesses,” which includes beauty, food & beverage and household essentials offset weakness in discretionary categories.
While Target’s worked to establish trust with its customers, clearly not all of them are trustworthy given the company’s continued trouble with shrink—an industry-wide problem.
“We now expect shrink will reduce this year’s profitability by more than $500 million compared with last year,” Cornell said. “While there are many potential sources of inventory shrink, theft and organized retail crime are increasingly important drivers of the issue. We are making significant investments in strategies to prevent this from happening in our stores and protect our guests and our team. We’re also focused on managing the financial impact on our business so we can continue to keep our stores open, knowing they create local jobs and offer convenient access to essentials.”
Target is projecting a low-single digit decline in comparable sales in the second quarter.
For the full year, it continues to project “comparable sales in a wide range from a low-single digit decline to a low-single digit increase” and operating income growth of more than $1 billion with EPS of $7.75 to $8.75.