Target bests profit forecasts on inventory drawdown, shares surge
By Siddharth Cavale and Ananya Mariam Rajesh
(Reuters) -Target on Wednesday forecast holiday-quarter profit largely above Wall Street expectations as the big-box retailer benefits from easing supply-chain costs and its efforts to control inventory start to pay off, sending its shares up 17% in morning trading.
Target's stock has lost a quarter of its value in a turbulent year marked by elevated inflation. Shoppers have squarely focused on food and essentials, while showing reluctance to spend on home goods, electronics, toys and apparel that are deemed less essential.
With nearly half of Target's sales coming from these less essential categories, its sales have fallen in the past two quarters, but the retailer has been about to eke out a higher profit on tighter inventory management and cost controls in other parts of its business, such as logistics.
On Wednesday, the company forecast adjusted earnings to land between $1.90 and $2.60 per share. The midpoint of that range topped analysts' expectations of $2.22 per share, according to LSEG data.
The Minneapolis-based retailer said the forecast follows a third quarter in which margins improved, helped by fewer discounts, a 14% reduction in inventories and related costs, and lower freight, supply-chain and delivery expenses. Seasonal merchandise for events such as back-to-school and Halloween outperformed other parts of its business, it added.
Gross margins in the fiscal third quarter ended Oct. 28 rose to 27.4%, from 24.7% a year earlier. The company also posted a smaller-than-expected drop of 4.9% in comparable sales for the quarter, compared with estimates of a 5.25% decline, helped by demand for beauty products, which generates about 30% of sales.
Excluding items,
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