Tuesday looked set to be a quiet day on Wall Street, with stock index futures little changed in the run-up to the opening bell. Just after trading started for the day, the S&P 500 (^GSPC 0.16%) eased lower by about 0.2%.
The consumer economy makes up a huge part of total business activity around the world, and investors in the U.S. have watched closely to see if signs of weakening demand would show up in the businesses that consumers visit most frequently. The latest financial results from Target (TGT -0.72%) presented somewhat of a mixed picture on that front, with solid fundamentals but the prospect of a future slowdown. For Norwegian Cruise Line Holdings (NCLH -0.62%), however, the news wasn't as good, and shareholders saw significant declines in its stock price early Tuesday.
Can Target keep hitting the mark?
Shares of Target opened higher by about 2% on Tuesday morning. The department store retailer's fiscal fourth-quarter financial report for the period ending Jan. 28 included modest gains but set the stage for a potential slowdown.
Target's quarterly results were mixed. Revenue inched higher by 1.3% year over year to $31.4 billion. However, net income plunged 43% to $876 million. That produced adjusted earnings of $1.89 per share, which was down significantly from year-ago levels but still better than many investors had expected. Comparable store sales were up just 0.7% from the same period in 2021.
CEO Brian Cornell pointed to strength in Target's food and beverage, beauty, and household essentials divisions, which helped to offset weakness in more discretionary purchase items. That seemed to reflect less disposable income for customers to spend, and Cornell said that Target has taken a conservative approach toward building inventory in discretionary items in favor of encouraging shoppers to visit stores more frequently for repeat-purchase items.
Guidance for 2023 was also mixed. Target anticipates sluggish sales performance, with comparables potentially falling by low-single-digit percentages or rising by similar amounts. The retailer hopes for earnings of $7.75 to $8.75 per share, however, which would be a nice recovery from the $6.02 per share that Target earned for the full 2022 fiscal year. After a long slide in the stock price, Target has started to show up on the radar for value investors, and that could help bolster the stock in the months to come.
Rough seas for Norwegian
Elsewhere, Norwegian Cruise Line Holdings didn't fare as well, as its stock dropped 7% near the open. The cruise line operator suffered a bigger loss than many had expected, and 2023 might not bring the size of recovery that many shareholders had hoped to see.
Norwegian's fourth-quarter financial results reflected the fact that unlike this time last year, ships are back at sea, with the cruise line operator seeing about 87% occupancy rates for the quarter. That sent revenue soaring to $1.52 billion, more than triple that in the year-ago period. However, even with business conditions improving, Norwegian lost $440 million, working out to an adjusted per-share loss of $1.04.
Despite the losses, Norwegian put a positive spin on its outlook. The company expects to hit 100% occupancy in the first quarter of 2023, and it's seeing bookings in line with past years but at higher prices than it had before the pandemic in 2019. Advance ticket sales are about 30% higher than they were at the end of 2019, although some of that figure represents cruise credits for past canceled bookings.
Nevertheless, investors seemed concerned that Norwegian still has a long way to go to get back to consistent profitability. Cost-cutting measures should help, but with the company expecting just $0.70 per share in adjusted earnings for 2023, shareholders fear that an economic recession could stop Norwegian's comeback attempt in its tracks.
