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Target hits the bullseye with upbeat earnings

 

Thursday, November 16, 2023

Today’s headlines

What’s happening: Shares of Target Corporation surged on Wednesday, after the company released results for its third quarter.

What happened: The big-box retailer reported better-than-expected earnings for its latest quarter on Wednesday.

Target also projected its holiday-quarter earnings higher than market estimates, which trigger the steepest spike in its stock since August 2019.

How were the results: The Minneapolis, Minnesota-based company reported a single-digit decline in sales for the third quarter.

  • Sales fell 4.2% year-over-year to $25.398 billion, exceeding the consensus estimates of $25.31 billion.
  • Adjusted earnings came in at $2.10 per share, topping Wall Street expectations of $1.48 per share.

Why it matters: Shares of the retail giant have remained under pressure this year due to soaring inflation forcing customers to focus their shopping on food and other essentials and cut their spending on home goods, apparels, electronics, and other non-essential products.

Target’s comparable sales contracted by 4.9% in the third quarter, recording a second consecutive quarterly decline, and reflecting a 4.6% decline in comparable store sales and a 6% downturn in comparable digital sales.

Gross margins expanded by 270 basis points to 27.4% in the quarter due to fewer deals and discounts, a decline in inventories, and lower supply-chain and freight expenses.

The company held cash and equivalents worth $1.9 billion as of October 28, 2023, while inventory by the end of the month had declined 14% year-over-year to $14.7 billion.

Management guided to fourth-quarter adjusted earnings of $1.90-$2.60 per share, compared to Wall Street estimates of $2.22 per share. They also guided to a decline in comparable sales in the mid-single-digit percentage range.

Target kicked off its Black Friday sale on October 29, offering four weeks of deals through Cyber Monday.

How shares responded: Target’s shares jumped 17.8% to close at $130.46 on Wednesday, following the release of quarterly results. The stock has lost around 17% over the past six months.

What to watch: Investors will continue monitoring higher inflation, as easing consumer prices are expected to provide a significant boost to Target’s overall sales. Markets will also watch Target’s performance in the Black Friday sale.

The markets today

The Canadian dollar will be in focus today ahead of housing starts data

Context: The CAD/USD forex pair rose on Wednesday, as investors assessed the latest economic data.

Details: Data released on Wednesday showed wholesale sales in Canada growing by 0.4% in September, compared to a 1.8% rise in August. However, the figure came in higher than market estimates of a flat reading.

Canada’s manufacturing sales also grew by 0.4% to C$72.8 billion in September, versus a 1% rise in August and notching growth for the third consecutive month.

The Bank of Canada held its benchmark interest rates for a second consecutive meeting in October.

Weakness in prices for crude oil, one of Canada’s major exports, limited upside for the loonie. WTI crude oil futures fell $1.60 to settle at $76.66 per barrel on Wednesday.

The CAD/USD forex pair climbed despite an increase in the US dollar. The US dollar index, which measures the greenback’s performance versus a basket of major peers, meanwhile, moved higher by around 0.3% to 104.39 on Wednesday.

The CAD/USD forex pair added around 0.1% to reach 1.3683 on Wednesday. The S&P/TSX Composite index rose by 0.17% to 20,057.89, extending gains recorded in the previous session.

What to watch: Investors await data on housing starts from Canada today. Housing starts in Canada, which rose by 8% to 270,466 units in September, are expected to come in at 245,000 in October.

PPI data, scheduled for release on Friday, will also remain in focus. Analysts expect industrial producer prices in Canada to rise by 0.3% in October, following a 0.4% increase in September.

Other Markets: European indices closed higher on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.62%, 0.66%, 0.33% and 0.42%, respectively.

The news shaping the markets

A senior Ukraine official said forces had secured a key position on the eastern shore of the Dnipro River. The news sent the safe-haven US dollar index slightly higher this morning.


China’s average new home prices fell by 0.1% year-over-year in October. This being the fourth straight month of decline exerted pressure on the CNY/USD forex pair.


Australia’s consumer inflation expectations rose to 4.9% in November, from 4.8% a month ago. This being the highest level since August sent the AUD/USD pair lower in forex trading this morning.


Japan’s core machinery orders grew by 1.4% in September, compared to a 0.5% decline in the prior month, lending support to the JPY/USD forex pair.


Russia’s gross domestic product grew by 5.5% year-over-year in the third quarter, topping market estimates of 4.8%, which sent the RUB/USD pair higher in forex trading this morning.

What else to watch today

South Africa’s building plans passed, Turkey’s gross foreign exchange reserves, Brazil’s IBC-Br economic activity index, US export prices, import prices, initial jobless claims, Philadelphia Fed manufacturing index, continuing jobless claims, industrial production, capacity utilization, manufacturing production, NAHB/Wells Fargo housing market index, natural gas stocks change, Kansas City Fed’s manufacturing production index, net long-term TIC flows, net purchases of US treasury bonds and notes, and net treasury international capital flows, as well as Spain’s consumer confidence indicator.


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