For most retailers these days, it can be aptly written that the strength of earnings results is all relative. Enter Target (TGT 56.37, +1.84, +3.4%), which delivered its first quarter earnings report today. The results it registered were relatively strong, yet they were far from strong on an absolute basis. That dynamic manifested itself across a number of key metrics.
Target's revenue of $16.02 billion was ahead of analysts' average expectation, yet it was down 1.1% year-over-year.
Comparable sales decreased 1.3%, which was better than the approximate 3.5% decline expected by analysts, yet that marked the fourth straight quarter that Target saw a comparable sales decline. In addition, the drivers of the comparable sales change included a 0.8% decline in the number of transactions and a 0.6% decline in the average transaction amount.
Target's adjusted profit of $1.21 per diluted share exceeded analysts' average estimate by 33%, yet it was 6.1% below the first quarter of 2016.
Clearly, the expectations bar for Target had been set quite low, and fortunately, Target was able to hurdle that bar. Still, by its own admission, it wasn't giving "high fives" in the room in response to the first quarter performance, which was also accented by a decline of 40 basis points in its gross margin rate to 30.5%.
Looking to the second quarter, Target is expecting a low single digit decline in comparable sales and adjusted EPS to be between $0.95 and $1.15, which brackets the current view held by analysts.
Despite the large earnings surprise for the first quarter, Target did not revise its fiscal 2017 guidance. The retailer did say, however, that the better than expected first quarter performance increased the probability that its full-year earnings would likely finish the year above the midpoint of its prior guidance of $3.80 to $4.20. Target is still expecting a low single-digit decline in comparable sales for fiscal 2017.
Shares of TGT have been under heavy fire this year, having fallen 25% as of Tuesday's close. The better than feared first quarter results have given the stock a boost this morning, yet Target still has much to prove in its turnaround effort. Its otherwise weak first quarter results on an absolute basis suggest as much.