Target Corporation (NYSE:TGT) lowered its annual guidance alongside its second-quarter results, but improved margin drove a better-than-expected profit figure, pushing shares up 7.5% in pre-market trading.
The Minneapolis-based retailer said sales in the three months to July 29 fell 4.9% to $24.38 billion from $25.65 billion the year before, but net earnings leapt more than fourfold to $835 million from $183 million, with EPS of $1.81 ahead of Street expectations of $1.39, and up from $0.40 before.
The jump in profit came as second-quarter gross margin improved to 27.0% from 21.5% a year ago, reflecting lower markdowns and other inventory-related costs, lower freight costs, retail price increases, and lower supply chain and digital fulfillment costs.
Target pointed out that inventory at the end of the quarter was 17% lower than last year, reflecting a 25% reduction in discretionary categories.
But the retailer was less upbeat looking ahead.
Brian Cornell, chair and chief executive said: "We continue to take a cautious approach to planning our business, and have therefore adjusted our financial guidance in anticipation of continued near-term challenges on the topline."
The company said it now expects comparable sales to decline by about mid-single-digits for the full fiscal year and earnings per share to range from $7 to $8.
It previously anticipated comparable sales would range from a low single-digit decline to a low single-digit increase, and earnings per share would come in between $7.75 and $8.75.