Why Target's Earnings Warning Isn't Pummeling the Stock

Updated from 9:08 a.m. with additional commentary from Target

NEW YORK ( TheStreet) -- Target ( TGT)  missed the mark financially in the second quarter as it continued to deal with soft customer traffic and pressured profit margins following a data breach during the 2013 holiday season.

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Despite the disappointing quarter and a full-year earnings warning, Target shares were advancing 1.1% to $59.17 in trading on Wednesday. Investors should attribute that to gushing optimism from management at the retailer and market psychology.

Target reported second-quarter adjusted earnings of 78 cents a share, in line with its lowered guidance from Aug. 5 and the Bloomberg consensus forecast. Target earlier this month said it expected second-quarter earnings of "within a range around 78 cents a share" compared with a prior outlook for 85 cents a share to $1 a share.  

Net sales were $17.4 billion, eclipsing the Bloomberg consensus estimate of $17.36 billion, and were paced by unchanged domestic same-store sales. By department, Target had the most success in its less discretionary merchandise categories, such as toys and electronics. Sales of apparel and home goods declined.

Domestic same-store sales were consistent with the company's guidance earlier this month. Target's domestic traffic has fallen for nine straight quarters.
 


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Target Canada had another challenging quarter. Same-store sales declined 11.4%, and gross profit margins fell to 18.4% from 31.6% a year earlier as the company marked down excess inventory. Noteworthy was an 8% decline in units per transaction on the part of customers even as Target aggressively marked down merchandise. 

Target Canada has now incurred a staggering $2.14 billion in operating losses since the company began to build the division in 2011.

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