Investors Punish Target For Downbeat Q2 Forecast

Target Corporation TGT provided a downbeat guidance for the second quarter by dragging its stock down more than 7 percent in the pre-market trading. The company's earnings for the first quarter topped the Street expectations while revenue fell shy of the estimations modestly.

Target announced net earnings of $632 million, down 0.4 percent from $635 million while earnings grew 6.6 percent to $1.05 a share from $0.98 a share in the year-ago quarter. On an adjusted basis, earnings from continuing operations advanced 16.5 percent to $1.29 a share from $1.10 a share in the previous year quarter. This was $0.10 per share higher than the Street analysts' expectations of $1.19 a share.

The company's sales fell 5.4 percent to $16.2 billion from $17.12 billion in the preceding year quarter. This was modestly lower than the analysts' predictions of $16.31 billion. Its comparable store sales grew 1.2 percent, which was not enough to offset the weakness in its pharmacy and clinic businesses.

Target's chairman and CEO, Brian Cornell, commented about the results, "We are pleased with our first quarter financial results, which demonstrate the effectiveness of our strategy in an increasingly volatile consumer environment. First quarter comparable sales in Signature Categories grew more than three times the Company average, digital comparable sales grew 23 percent, and strong execution by our team delivered stronger-than-expected growth in Adjusted EPS. With an outstanding team, a resilient business model and a strong balance sheet, we plan to successfully implement our long-term strategy, even in the face of a challenging short-term consumer landscape."

The company indicated it bought back 11.4 million shares at an average price of $78.37, for a total investment of $893 million in first quarter. The retailer also paid dividends of $336 million. Overall, the Company claimed that it returned $1.23 billion to shareholders in first quarter 2016. Also, since the commencement of its current $10.0 billion buyback program, it bought back 106.0 million shares at an average cost of $70.51 for about $7.5 billion.

Moving ahead, Target said that it expects adjusted earnings to be $1.00 - $1.20 a share on flat comparable store sales in the second quarter. This was lower than the Street estimation of $1.36 a share.

Shares of the company traded 7.63 percent down in the pre-market trading on Wednesday.