Is Target's Surge Sustainable?
$Target(TGT)$ stock rise nearly 18% after its earnings report? I believe it was to some extent a catch-up rise.
Twenty-three years ago, TGT suffered a more severe decline in the first two quarters than its peers $Wal-Mart(WMT)$ and $Costco(COST)$,mainly due to its own poor operations, cost control, inventory backlog, which dragged down several quarters.
In addition, the "zero-dollar buy" activity in some regions of the United States also caused some losses.
Therefore, the market did not have high expectations for Q3 performance, but the consensus was that it "will slowly improve." The fact is that TGT's Q3 improvement exceeded expectations, so the market also "bought it."
Q3 same-store sales were down 4.9% YoY, higher than the market's expected -5.2%. Total sales fell 4.2% to $25.4 billion, exceeding the market's expected $25.2 billion. At the same time, the decline in select categories offset the continued growth in frequency categories, especially in beauty. Instant service grew by more than 8%, with Drive-Up growing by more than 12%.
Profitability improved this quarter. Gross profit margin was 27.4% of sales, up from 24.7% last year, reflecting lower markdowns and other inventory-related costs, lower shipping costs, lower supply chain and digital fulfillment costs, and favorable category combinations. Operating profit margin was 5.2%, up from 3.9% last year. EPS was $2.10, exceeding the expected $1.48.
Adjusted EBITDA was $2.06 billion, exceeding market expectations of $1.67 billion and last year's $1.71 billion.
Inventory decreased by 14%, with select category inventory decreasing by 19%.
Q3 did not repurchase any shares, but the board-approved repurchase plan still has about $9.7 billion remaining.
However, Target's surge may not be replicated at Walmart (WMT), which has always been favored by investors, although the latter is also about to release its earnings report.
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