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Target (TGT) Up 15.6% Since Earnings Report: Can It Continue?
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More than a month has gone by since the last earnings report for Target Corporation (TGT - Free Report) . Shares have added about 15.6% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Target Q3 Earnings & Sales Beat Estimates
Target Corporation continued with its upbeat performance in fiscal 2017, as reflected from its better-than-expected third-quarter results. The company’s strategic endeavors, turnaround plan as well as improved traffic trends remain the driving factors.
Despite a positive earnings surprise, investors remained concerned about the year-over-year decline in the bottom line and management’s commentary about highly competitive environment in the fourth quarter. Further, the company did not provide an encouraging earnings outlook for the final quarter due to increased spending related to stores, lower pricing and higher wages that are likely to weigh upon margins. However, the company raised its full year projection providing some cushion.
Let’s Unveil the Picture
The company posted third-quarter adjusted earnings of 91 cents a share that came ahead of the Zacks Consensus Estimate of 86 cents but declined 13.1% from the prior-year period. We observed that rise in cost of sales, increased SG&A expenses and higher interest expense hurt the bottom line.
The company generated total sales of $16,667 million that also surpassed the Zacks Consensus Estimate of $16,613 million and rose 1.4% from the year-ago quarter.
Target’s initiatives such as the development of omni-channel capacities, diversification and localization of assortments along with emphasis on flexible format stores and cost reduction are encouraging. During the quarter, the company remodeled 37 stores and opened 12 new stores. In a bid to stimulate its digital sales this holiday season, Target is also strengthening its relationship with Google by allowing customers nationwide to shop through Google Express including voice-activated shopping.
The company also rolled out Target Restock program that allows customers to restock their shipping box with essential items online and get them delivered at door steps by the next business day for a nominal charge. These endeavors are important due to changing retail landscape that encompasses increasing online penetration and aggressive pricing that may hurt sales and margins.
Notably, comparable sales for the quarter increased 0.9% compared with 0.2% decline witnessed in the year-ago period. The number of transactions rose 1.4%, while the average transaction amount declined 0.5%. Comparable digital channel sales surged 24% and added 0.8 percentage points to comparable sales.
Gross profit inched up 1% to $4,955 million, while gross margin contracted 10 basis points to 29.7% on account of pricing and promotion pressure coupled with cost of digital fulfillment, partly mitigated by cost containment efforts. The company hinted that gross margin is likely to remain under pressure during the fourth quarter as well.
Operating income plummeted 17.8% to $869 million, while operating margin shriveled 120 basis points to 5.2%.
Target’s debit and credit card penetration remained flat at 12.9% and 11.4%, respectively. Total REDcard penetration climbed to 24.2% from 24.3% in the year-ago quarter.
Other Financial Details
During the quarter, Target repurchased shares worth $171 million and paid dividends of $339 million. The company still had about $4 billion remaining under its $5 billion share buyback program. The company ended the quarter with cash and cash equivalents of $2,725 million, long-term debt and other borrowings of $11,277 million and shareholders’ investment of $11,137 million. The company made a capital investment of $800 million during the quarter.
A Glance at the Outlook
Management now anticipates fourth quarter comparable sales to be flat to up 2%. The company expects fiscal 2017 comparable sales to be flat to up 1%.
Target now envisions fourth quarter earnings in the band of $1.05-$1.25 and fiscal 2017 earnings between $4.40 and $4.60 up from $4.34-$4.54 per share projected earlier.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There has been one revision lower for the current quarter.
At this time, Target's stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with a F. The stock was also allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Target (TGT) Up 15.6% Since Earnings Report: Can It Continue?
More than a month has gone by since the last earnings report for Target Corporation (TGT - Free Report) . Shares have added about 15.6% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Target Q3 Earnings & Sales Beat Estimates
Target Corporation continued with its upbeat performance in fiscal 2017, as reflected from its better-than-expected third-quarter results. The company’s strategic endeavors, turnaround plan as well as improved traffic trends remain the driving factors.
Despite a positive earnings surprise, investors remained concerned about the year-over-year decline in the bottom line and management’s commentary about highly competitive environment in the fourth quarter. Further, the company did not provide an encouraging earnings outlook for the final quarter due to increased spending related to stores, lower pricing and higher wages that are likely to weigh upon margins. However, the company raised its full year projection providing some cushion.
Let’s Unveil the Picture
The company posted third-quarter adjusted earnings of 91 cents a share that came ahead of the Zacks Consensus Estimate of 86 cents but declined 13.1% from the prior-year period. We observed that rise in cost of sales, increased SG&A expenses and higher interest expense hurt the bottom line.
The company generated total sales of $16,667 million that also surpassed the Zacks Consensus Estimate of $16,613 million and rose 1.4% from the year-ago quarter.
Target’s initiatives such as the development of omni-channel capacities, diversification and localization of assortments along with emphasis on flexible format stores and cost reduction are encouraging. During the quarter, the company remodeled 37 stores and opened 12 new stores. In a bid to stimulate its digital sales this holiday season, Target is also strengthening its relationship with Google by allowing customers nationwide to shop through Google Express including voice-activated shopping.
The company also rolled out Target Restock program that allows customers to restock their shipping box with essential items online and get them delivered at door steps by the next business day for a nominal charge. These endeavors are important due to changing retail landscape that encompasses increasing online penetration and aggressive pricing that may hurt sales and margins.
Notably, comparable sales for the quarter increased 0.9% compared with 0.2% decline witnessed in the year-ago period. The number of transactions rose 1.4%, while the average transaction amount declined 0.5%. Comparable digital channel sales surged 24% and added 0.8 percentage points to comparable sales.
Gross profit inched up 1% to $4,955 million, while gross margin contracted 10 basis points to 29.7% on account of pricing and promotion pressure coupled with cost of digital fulfillment, partly mitigated by cost containment efforts. The company hinted that gross margin is likely to remain under pressure during the fourth quarter as well.
Operating income plummeted 17.8% to $869 million, while operating margin shriveled 120 basis points to 5.2%.
Target’s debit and credit card penetration remained flat at 12.9% and 11.4%, respectively. Total REDcard penetration climbed to 24.2% from 24.3% in the year-ago quarter.
Other Financial Details
During the quarter, Target repurchased shares worth $171 million and paid dividends of $339 million. The company still had about $4 billion remaining under its $5 billion share buyback program. The company ended the quarter with cash and cash equivalents of $2,725 million, long-term debt and other borrowings of $11,277 million and shareholders’ investment of $11,137 million. The company made a capital investment of $800 million during the quarter.
A Glance at the Outlook
Management now anticipates fourth quarter comparable sales to be flat to up 2%. The company expects fiscal 2017 comparable sales to be flat to up 1%.
Target now envisions fourth quarter earnings in the band of $1.05-$1.25 and fiscal 2017 earnings between $4.40 and $4.60 up from $4.34-$4.54 per share projected earlier.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There has been one revision lower for the current quarter.
Target Corporation Price and Consensus
Target Corporation Price and Consensus | Target Corporation Quote
VGM Scores
At this time, Target's stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with a F. The stock was also allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.