Target Corp posted a surprise rise in holiday-quarter sales on Tuesday, buoyed by an increase in store traffic from discount-hungry Americans, even as it joined other retailers to caution on 2023 earnings due to an uncertain US economy.
Shares rose 2.2% in premarket trading as the company beat quarterly profit estimates for the first time in a year.
Surging prices over the last year have hurt demand for non-essential products, forcing retailers to cut prices on everything from toys to electronics to clear stocks.
Customer Traffic Increase
The discounts helped drive a 0.7% increase in customer traffic during Target's fourth quarter, but contributed to a 3 percentage point decline in gross margins.
The big-box retailer forecast annual earnings of $7.75 to $8.75 per share, below analysts' estimates of $9.23, according to Refinitiv data.
"Target had to lower guidance last year pretty quickly, so they don't want to make the mistake again of getting overly aggressive with guidance," M Science Senior Analyst, John Tomlinson said.
Uncertain Economic Environment
The retail management teams are also being cautious, he said, given a more uncertain economic environment.
Retailers including Walmart and Home Depot had also last week issued conservative annual forecasts on worries about a steep economic downturn in the second half of the year due to rising borrowing costs.
"We're planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating environment," Brian Cornell, chief executive, Target said.
End Of Quarter
The company's comparable sales in the quarter ended in 28 January rose 0.7%, while analysts expected a 1.5% fall.
Target in November forecast fourth-quarter comparable sales to fall by about a low single-digit percentage, as it witnessed a "precipitous decline" in discretionary demand.
Higher markdowns, however, helped bring down discretionary inventories by about 13% at the end of the quarter compared to a year ago.
The company said it expects full-year comparable sales in a wide range from a low-single digit decline to a low-single digit increase.