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Will Target Corp. (TGT) Miss Q2 Earnings On Higher Costs?

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Target Corp. (TGT - Free Report) is set to report its second-quarter fiscal 2014 results on Aug 20, 2014. Last quarter, it posted in line earnings. Let us see how things are developing for this announcement.

Factors Affecting this Quarter

Target has already made certain preliminary announcements on its second-quarter 2014 results, including recording higher expenses and lowering earnings per share outlook. Owing to the data breach experienced by Target late last year, the company expects to record gross expenses of $148 million in the quarter, partly offset by insurance receivable worth $38 million.

Management foresees the second quarter to witness a hike in expenses owing to accrued and potential claims, like those by payment card networks, on account of the breach.

As per sources, the company has been recording significant costs ever since its computer systems got hacked and credit card information of its customers was stolen in Dec 2013. The company has been attributing a part of breach-related expenses to consulting, legal and credit monitoring services.

Moreover, the company made a $1 billion payment as an early debt retirement in the second quarter, which resulted in a pre-tax loss of $285 million for Target. This will be noted as net interest expense in second-quarter 2014.  

Following the ongoing impact of its data breach and the aforementioned predictions, this general merchandise retailer lowered its earnings per share outlook for the second quarter.

Also, management anticipates sales to remain soft at the company’s Canadian segment as the breach has shaken consumer confidence, resulting in lesser footfall and a public relations nightmare for the company.

Earnings Whispers

Our proven model does not conclusively project Target as likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here as you will see below.

Zacks ESP:  ESP for Target is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 78 cents.

Zacks Rank: Target carries a Zacks Rank #5 (Strong Sell) which when combined with 0.00% ESP makes surprise prediction difficult. We caution against stocks with a Zacks Rank #4 and #5 (Sell-rated stocks) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows these to have the right combination of elements to post an earnings beat:  

Abercrombie & Fitch Co. (ANF - Free Report) has an Earnings ESP of +20.00% and a Zacks Rank #2 (Buy).

Zoe's Kitchen, Inc. has an Earnings ESP of +50.00% and a Zacks Rank #2.

Dollar Tree, Inc. (DLTR - Free Report) has an Earnings ESP of +7.69% and a Zacks Rank #3 (Hold).

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Target Corporation (TGT) - free report >>

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