Published - February 28, 2023 @ 4:23 PM (EET)

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Target Corporation (NYSE:TGT) jumped in early trading Tuesday after the retailer posted a surprise increase in holiday-quarter sales that topped Wall Street earnings estimates for the first time in a year.

Still, the company joined other retailers to warn about a slowdown as consumers continue to focus on necessities and spend less on discretionary goods. 

Adjusted earnings will increase no more than $8.75 for the fiscal 2023 year, said the company as it reported financial results. That number is below analysts' estimates of $9.23, according to Refinitiv data.

EARNINGS REPORT

Beating the average analyst estimate for earnings, Target posted earnings per share of $1.89 on revenue of $31.4 billion. Analysts predicted earnings per share of $1.40  on revenue of $30.65 billion.

Meanwhile, overall sales climbed 1.2% compared to the year-ago period, and comparable sales, a key metric that tracks sales at stores open at least 13 months and online, grew 0.7%.

While the big-box retailer beat the top and bottom lines and continues to attract customers traffic, the company faces a long road ahead in its push to rebuild profits following a sales spike in the early days of the pandemic. From fiscal 2019 to 2022, the company's total revenue has grown by nearly 40%, or about $31 billion.

However, Target has faced a shift in sales trends as well as market sentiment over the past year, becoming a poster child in the industry over concerns about inflation-pinched middle-income consumers, inventory troubles, and squeezed profit margins.

In a welcome relief, inventory fell 2.9% to $13.5 billion after a jump of more than 40% early last year as demand weakened and unwanted merchandise piled up that forced discounts and reduced profit margins earlier in the year.

NOW WHAT

This year, Target predicts operating income to increase by over $1 billion, which would lift the total to at least $4.8 billion. In addition, Target expects its operating margin to reach and then exceed its pre-pandemic rate of 6% over the next three years, "depending on the speed of recovery for the economy and consumer demand."

Shares traded about 5% higher in pre-market Tuesday.

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