Revenue
Earnings
Target has guided for both GAAP and adjusted EPS to range from $1.30-1.70 in Q2 2023. Analysts are predicting EPS of $1.41 which compares to $0.39 in the year-ago period. In Q1 2023, GAAP EPS fell 4.8% to $2.05 while adjusted EPS dropped 6.2% to $2.05 versus the prior-year period.
Points to note
Inflationary pressures and cautious consumer spending have led to higher demand for essentials and a slowdown in discretionary categories. In Q1, comparable sales remained flat year-over-year. For Q2, Target expects a low single-digit decline in comparable sales.
The shift towards essentials over discretionary categories as well as the impacts from inventory shrink are likely to weigh on margins. Target expects a meaningful tailwind from freight and transportation costs and a significant headwind from inventory shrink to its gross margin in Q2. The company expects its operating margin rate to be higher on a year-over-year basis but lower on a sequential basis.
Target is expected to benefit from its multi-category portfolio as well as the efficiency of its same-day services. In Q1, same-day services expanded more than 5%, led by the Drive-Up service. Its continued investments in its stores and delivery services are likely to pay off.