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Target’s stock surges despite sales miss

Thursday, August 17, 2023

Today’s headlines

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

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

However, Target recorded its first quarterly decline in sales in six years amid lower discretionary spending and a rise in retail theft.

How were the results: The Minneapolis, Minnesota-based company reported a sharp rise in earnings for the latest quarter.

  • Sales contracted by 4.9% year-over-year to $24.77 billion, missing the consensus estimates of $25.18 billion.
  • Adjusted earnings surged to $1.80 per share, topping Wall Street expectations of $1.39 per share.

Why it matters: Several factors, including higher interest rates and soaring inflation, have resulted in cost-conscious customers pulling back their discretionary spending, impacting the overall sales of large retailers.

Target’s sales were also negatively impacted by a backlash against its Pride collection and losses related to theft and organised retail crime.

Comparable sales fell 5.4%, with a 4.3% decline in comparable store sales and a 10.5% decline in comparable digital sales.

Despite the softer-than-expected sales, Target generated better-than-expected profitability. The company’s operating margins rose 3 percentage points from last year to 4.8%, while operating income surged by 273% to $1.2 billion. Gross margins jumped 550 basis points to 27% for the quarter.

Target distributed around $499 million in dividends during the second quarter, up from $417 million in the same quarter last year.

Management guided to a mid-single-digit decline in comparable sales for the rest of the year. They also lowered their adjusted earnings forecast for fiscal 2023 from $7.75-$8.75 per share to $7.00-$8.00 per share.

For the third quarter, Target projected adjusted earnings of $1.20-$1.60 per share, significantly lower than market estimates of $1.84 per share.

How shares responded: Target’s shares gained 3% to close at $128.75 on Wednesday, following the release of quarterly results. The stock has lost around 26% over the past six months.

What to watch: Traders will watch US inflation data, which is expected to impact Target’s overall results ahead. Investors will also monitor the company’s issues related to theft and organised retail crime.

The markets today

Gold will be in focus today after closing lower on Wednesday

Context: Gold prices declined for the eighth straight session on Wednesday, amid strength in the US dollar.

Details: Gold prices fell for eight sessions in a row with a rise in the benchmark 10-year US Treasury note yield.

Strength in the US dollar also exerted pressure on gold prices, as a higher greenback generally makes commodities and metals more expensive for foreign currency holders. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained over 0.2% to 103.43 on Wednesday.

Minutes from the US Federal Open Market Committee meeting released on Wednesday showed that officials see persisting upside risk to inflation. This sparked speculations of more rate hikes by the Federal Reserve, lending support to the US dollar.

Positive economic data from the US also boosted investor risk appetite, lowering the demand for safe-haven options like gold. US housing starts increased by 3.9% to 1.45 million in July, while US industrial production grew by 1% in July, after falling over the prior two months.

Gold futures for December delivery fell by $6.90, or 0.4%, to close at $1,928.30 per ounce on Wednesday. This represented their weakest levels since July 6.

In other metals trading, silver futures for September delivery fell 0.5% to settle at $22.54 per ounce. Palladium futures for September delivery declined by 2.1% to close at $1,212.40 per ounce, while platinum futures for October delivery slipped 0.1% to close at $891.30 per ounce and copper futures for September delivery lost 0.3% to end at $3.66 per pound.

What to watch: Traders await the release of major economic reports from around the world, which will provide some direction to gold prices. Markets will also watch movements in the US dollar.

Other Markets: European indices closed mostly lower on Wednesday, with the FTSE 100, CAC 40 and STOXX Europe 600 Index down by 0.44%, 0.10% and 0.06%, respectively, and the DAX 40 up by 0.14%.

The news shaping the markets

The United States imposed sanctions on three entities over alleged arms deals between North Korea and Russia. The news sent the safe-haven US dollar index higher this morning.


Australia’s unemployment rose to 3.7% in July, from 3.5% in the prior month. The figure also came above market estimates of 3.6% and exerted pressure on the AUD/USD forex pair.


Singapore’s non-oil domestic exports contracted by 20.2% year-over-year in July, worse than market expectations of a 14.4% decline, which sent the SGD/USD pair lower in forex trading this morning.


Japan posted an unexpected trade deficit of ¥78.73 billion in July, versus market expectations of a surplus of ¥24.6 billion in the previous month, which exerted pressure on the JPY/USD forex pair.


New Zealand’s producer input prices fell by 0.2% during the three months to June, versus a flat reading in the prior quarter, which sent the NZD/USD pair lower in forex trading this morning.

What else to watch today

Spain’s balance of trade, Eurozone’s balance of trade, South Africa’s building permits and SACCI business confidence index, Turkey’s gross foreign exchange reserves, Canada’s foreign securities purchases, US Philadelphia Fed Manufacturing index, initial jobless claims, continuing jobless claims, Philly Fed business conditions and natural gas stocks change, as well as China’s foreign direct investment.


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