Retail Sales Slip, But Target Soars

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Consumers have done the heavy lifting this year, as retail sales had increased for six straight months, but that streak ended in October. The Commerce Department reported on Wednesday that retail sales ticked down 0.1% in October from September, falling to $705 billion.

However, sales were still better than economists expected, up 2.5% year over year in October. For the three months from August through October, sales jumped 3.1% compared to the same period in 2022.

Additionally, the control group, which traders tend to focus more on as it is a more precise measure of consumer behavior, was up 0.2% from September. The control group excludes sales from auto dealers, building-materials retailers, gas stations, office supply stores, mobile homes and others. It was also up just excluding gas stations, with lower gas prices now accounting for the difference.

Clothing stores, restaurants and online retailers were all up, while general merchandise and department stores were down slightly. However, that did not stop one of the nation’s largest retailers, Target (NYSE:TGT), from having a big quarter.

Target jumps 18% on earnings beat

Target stock was soaring on Wednesday, up by about 18% to over $130 per share in morning trading. While total sales were down 4.3% year over year and revenue fell 4.2%, the company still beat expectations. Comparable, or same-store sales, which include sales just for existing stores as opposed to new ones, were down 4.9% in the quarter, in line with expectations.

However, Target’s net income jumped 36% to $971 million or $2.10 per share, smashing estimates of $1.47 per share. Earnings were boosted by a 14% drop in net interest expense and disciplined inventory and expense management.

Inventory was 14% lower than last year, with a 19% reduction in discretionary-category inventory. Good inventory management has several benefits, including lower storage costs and less potential for losses from overstocking, among others.

“This profit performance benefited from our team’s commitment to efficiency and disciplined inventory management, and I’d like to thank them for their tireless efforts,” Target CEO Brian Cornell said. “Looking ahead, we’re continuing to make investments throughout our business — in our assortment, our team, and the services we offer — to provide the newness, affordability, and convenience our guests want during the holiday season and beyond.”

The result was operating income that was 29% higher in Q3 to $1.3 billion and an operating income margin of 5.2%, up from 3.9% in the third quarter of 2022.

Kohl’s, VF Corp. and other retail gainers

Target’s strong earnings and the decent retail sales report for October lifted several retail stocks on Wednesday, including outdoor and workwear retailer VF Corp. (NYSE:VFC), which was up 15% on Wednesday, and Kohl’s (NYSE:KSS), which moved 10% higher. Additionally, Macy’s (NYSE:M) and Nordstrom (NYSE:JWN), were each up 7% on Wednesday.

Meanwhile, internet retailers Newegg Commerce (NASDAQ:NEGG) and Wayfair (NYSE:W) gained 27% and 8%, respectively, on Wednesday.

It will be interesting to see if the momentum continues tomorrow as Walmart (NYSE:WMT), Macy’s, Gap (NYSE:GPS) and Ross Stores (NASDAQ:ROST), are among the retailers set to report earnings.