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Target (TGT) Up 1.5% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Target (TGT - Free Report) . Shares have added about 1.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Target due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Target Beats on Q2 Earnings, Raises FY19 View
Target Corporation continued with its impressive performance in fiscal 2019 and posted solid second-quarter results, thereby prompting management to raise fiscal year earnings view. Robust traffic, favorable store comps and a surge in comparable digital sales are clearly yielding results for this Minneapolis-based company. Both the top and the bottom line not only beat the respective Zacks Consensus Estimate but also increased year over year.
Let’s Delve Deeper
This operator of general merchandise stores reported adjusted earnings of $1.82 per share that surpassed the Zacks Consensus Estimate of $1.61 and improved 23.9% from the prior-year period. This year-over-year growth can be attributable to higher sales and share repurchase activity.
Target now projects third-quarter adjusted earnings between $1.04 and $1.24 per share, the mid-point of which $1.14 is higher than $1.09 reported in the year-ago period. For fiscal 2019, management now anticipates adjusted earnings in the band of $5.90-$6.20, up from the prior range of $5.75-$6.05. The company had reported earnings of $5.39 in fiscal 2018.
The company generated total revenue of $18,422 million that increased 3.6% from the year-ago period and surpassed the Zacks Consensus Estimate of $18,330 million. We note that sales jumped 3.6% to $18,183 million, while other revenue rose 6.3% to $239 million.
Target is deploying resources to enhance omni-channel capacities, coming up with new brands, remodeling or refurbishing stores, and expanding same-day delivery options. Target has undertaken rationalization of supply chain with same-day delivery of in-store purchases along with technology and process improvements.
Meanwhile, comparable sales for the quarter increased 3.4% compared with 6.5% growth witnessed in the year-ago period. The number of transactions rose 2.4%, while the average transaction amount improved 0.9%. Comparable digital channel sales surged 34% and added 1.8 percentage points to comparable sales. Management now envisions comparable sales to increase about 3.4% both in the third quarter and second half of fiscal 2019.
Gross margin expanded 30 basis points to 30.6% during the quarter on account of cost optimization, pricing, promotions and assortment, and favorable category sales mix. Operating margin expanded 80 basis points to 7.2%. Management expects operating margin rate to be flat to up slightly during the third quarter benefiting from gross margin expansion, offset by SG&A pressure.
Target’s debit card penetration shrunk 50 basis points to 12.5%, while credit card penetration fell 20 basis points to 10.7%. Total REDcard penetration declined to 23.2% from 23.9% in the year-ago quarter.
Other Financial Details
During the quarter, Target repurchased shares worth $341 million and paid dividends of $328 million. The company still had about $1 billion remaining under its $5 billion share buyback program. The company ended the quarter with cash and cash equivalents of $1,656 million, long-term debt and other borrowings of $10,365 million and shareholders’ investment of $11,836 million. Management continues to expect capital expenditures of $3.5 billion during fiscal 2019 attributable to remodel program, other investments in store assets, new store openings and supply chain and technology capabilities.
For fiscal 2020, Target anticipates capital expenditures of $3.5 billion as it expects to maintain current remodel pace of about 300 stores for one additional year. However, beyond fiscal 2020 the company plans to remodel 150-200 stores a year. As a result, capital expenditures for fiscal 2021 is projected to be in the range of $2.5-$3 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Target has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Target has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Target (TGT) Up 1.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Target (TGT - Free Report) . Shares have added about 1.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Target due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Target Beats on Q2 Earnings, Raises FY19 View
Target Corporation continued with its impressive performance in fiscal 2019 and posted solid second-quarter results, thereby prompting management to raise fiscal year earnings view. Robust traffic, favorable store comps and a surge in comparable digital sales are clearly yielding results for this Minneapolis-based company. Both the top and the bottom line not only beat the respective Zacks Consensus Estimate but also increased year over year.
Let’s Delve Deeper
This operator of general merchandise stores reported adjusted earnings of $1.82 per share that surpassed the Zacks Consensus Estimate of $1.61 and improved 23.9% from the prior-year period. This year-over-year growth can be attributable to higher sales and share repurchase activity.
Target now projects third-quarter adjusted earnings between $1.04 and $1.24 per share, the mid-point of which $1.14 is higher than $1.09 reported in the year-ago period. For fiscal 2019, management now anticipates adjusted earnings in the band of $5.90-$6.20, up from the prior range of $5.75-$6.05. The company had reported earnings of $5.39 in fiscal 2018.
The company generated total revenue of $18,422 million that increased 3.6% from the year-ago period and surpassed the Zacks Consensus Estimate of $18,330 million. We note that sales jumped 3.6% to $18,183 million, while other revenue rose 6.3% to $239 million.
Target is deploying resources to enhance omni-channel capacities, coming up with new brands, remodeling or refurbishing stores, and expanding same-day delivery options. Target has undertaken rationalization of supply chain with same-day delivery of in-store purchases along with technology and process improvements.
Meanwhile, comparable sales for the quarter increased 3.4% compared with 6.5% growth witnessed in the year-ago period. The number of transactions rose 2.4%, while the average transaction amount improved 0.9%. Comparable digital channel sales surged 34% and added 1.8 percentage points to comparable sales. Management now envisions comparable sales to increase about 3.4% both in the third quarter and second half of fiscal 2019.
Gross margin expanded 30 basis points to 30.6% during the quarter on account of cost optimization, pricing, promotions and assortment, and favorable category sales mix. Operating margin expanded 80 basis points to 7.2%. Management expects operating margin rate to be flat to up slightly during the third quarter benefiting from gross margin expansion, offset by SG&A pressure.
Target’s debit card penetration shrunk 50 basis points to 12.5%, while credit card penetration fell 20 basis points to 10.7%. Total REDcard penetration declined to 23.2% from 23.9% in the year-ago quarter.
Other Financial Details
During the quarter, Target repurchased shares worth $341 million and paid dividends of $328 million. The company still had about $1 billion remaining under its $5 billion share buyback program. The company ended the quarter with cash and cash equivalents of $1,656 million, long-term debt and other borrowings of $10,365 million and shareholders’ investment of $11,836 million. Management continues to expect capital expenditures of $3.5 billion during fiscal 2019 attributable to remodel program, other investments in store assets, new store openings and supply chain and technology capabilities.
For fiscal 2020, Target anticipates capital expenditures of $3.5 billion as it expects to maintain current remodel pace of about 300 stores for one additional year. However, beyond fiscal 2020 the company plans to remodel 150-200 stores a year. As a result, capital expenditures for fiscal 2021 is projected to be in the range of $2.5-$3 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Target has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Target has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.