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Target (TGT) Down 8.9% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Target (TGT - Free Report) . Shares have lost about 8.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Target due for a breakout? 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 catalysts.
Target Q3 Earnings Miss Estimates and Decline Y/Y
Target Corporation came up with third-quarter fiscal 2022 results, wherein the top line beat the Zacks Consensus Estimate and grew year over year. Comparable sales increased for the 22nd successive quarter, primarily gaining from growth in store channels.
However, higher markdown rates and increased freight costs continued to weigh on margins. The bottom line missed the consensus mark and fell sharply from the year-ago period. This was the third straight earnings miss.
Management informed that sales and profit trends softened in the latter part of the quarter. Soaring inflation, rising interest rates and ongoing geopolitical tensions have brought a drastic change in consumer behavior. As a result, the profit performance came below the company’s expectations.
This Minneapolis, MN-based company cautioned that softening sales and profit trends have continued in November. It now foresees a low-single-digit decline in comparable sales and an operating margin rate of around 3% in the key holiday quarter. Earlier, Target had forecast low-to-mid-single-digit revenue growth for fiscal 2022 and an operating margin to be around 6% for the back half of the year.
Nonetheless, to simplify and improve efficiencies across the business, Target announced an enterprise-wide cost-containment effort. Through the initiative, the company plans to save between $2 billion and $3 billion over the next three years. Despite a challenging operating environment, management aims to attain total sales of more than $100 billion this year.
Sales & Earnings Picture
Target reported adjusted earnings of $1.54 per share, which fell short of the Zacks Consensus Estimate of $2.15 and our estimate of $2.07. Also, the bottom line declined significantly from the $3.03 reported in the year-ago period.
The big-box retailer generated total revenues of $26,518 million, which increased 3.4% year over year and came ahead of the Zacks Consensus Estimate of $26,355 million and our estimate of $26,300.6 million. We note that sales jumped 3.3% to $26,122 million, while other revenues rose 9.5% to $396 million driven by the growth in Roundel ad business. Target witnessed unit share gains across all five core merchandising categories.
Meanwhile, comparable sales for the quarter under discussion increased 2.7%, surpassing our estimate of 2.3%. The comparable sales growth reflected a 1.4% increase in traffic and a 1.3% increase in the average transaction amount. Comparable store sales grew 3.2%, while comparable digital sales increased 0.3%. Same-day services led digital growth, most notably through drive-up service, which delivered high single-digit growth. Frequency categories, such as beauty, food and beverage and household essentials, drove comparable sales growth.
Target’s debit card penetration contracted 90 basis points to 10.8%, while credit card penetration decreased 10 basis points to 8.8%. The total REDcard penetration declined to 19.6% from the year-ago quarter’s 20.7%.
Margins
The gross margin decreased 330 basis points to 24.7%, reflecting higher markdown rates, inventory shrink, and merchandise and freight costs. Additionally, the increased compensation and headcount in distribution centers and the cost of managing the excess inventory also hurt the gross margin rate. Meanwhile, the operating income declined 49.2% to $1,022 million, while the operating margin shriveled to 3.9% from 7.8% in the year-ago period.
Other Financial Details
Target ended the quarter with cash and cash equivalents of $954 million, long-term debt and other borrowings of $14,237 million and shareholders’ investment of $11,019 million. During the quarter, Target paid out dividends of $497 million.
Management has incurred capital expenditures of $4.3 billion during the first three quarters of fiscal 2022, and plans to spend around $5.5 billion in the fiscal. The company didn't repurchase any shares in the third quarter.
On the store front, Target plans to conclude roughly 200 full remodel projects in the current fiscal. It also intends to complete about 200 fulfillment retrofits this year to support same-day services. The company is on track to add 23 new locations to the chain in the current fiscal year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -57.5% due to these changes.
VGM Scores
At this time, Target has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 indicates a downward shift. Notably, Target has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Target (TGT) Down 8.9% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Target (TGT - Free Report) . Shares have lost about 8.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Target due for a breakout? 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 catalysts.
Target Q3 Earnings Miss Estimates and Decline Y/Y
Target Corporation came up with third-quarter fiscal 2022 results, wherein the top line beat the Zacks Consensus Estimate and grew year over year. Comparable sales increased for the 22nd successive quarter, primarily gaining from growth in store channels.
However, higher markdown rates and increased freight costs continued to weigh on margins. The bottom line missed the consensus mark and fell sharply from the year-ago period. This was the third straight earnings miss.
Management informed that sales and profit trends softened in the latter part of the quarter. Soaring inflation, rising interest rates and ongoing geopolitical tensions have brought a drastic change in consumer behavior. As a result, the profit performance came below the company’s expectations.
This Minneapolis, MN-based company cautioned that softening sales and profit trends have continued in November. It now foresees a low-single-digit decline in comparable sales and an operating margin rate of around 3% in the key holiday quarter. Earlier, Target had forecast low-to-mid-single-digit revenue growth for fiscal 2022 and an operating margin to be around 6% for the back half of the year.
Nonetheless, to simplify and improve efficiencies across the business, Target announced an enterprise-wide cost-containment effort. Through the initiative, the company plans to save between $2 billion and $3 billion over the next three years. Despite a challenging operating environment, management aims to attain total sales of more than $100 billion this year.
Sales & Earnings Picture
Target reported adjusted earnings of $1.54 per share, which fell short of the Zacks Consensus Estimate of $2.15 and our estimate of $2.07. Also, the bottom line declined significantly from the $3.03 reported in the year-ago period.
The big-box retailer generated total revenues of $26,518 million, which increased 3.4% year over year and came ahead of the Zacks Consensus Estimate of $26,355 million and our estimate of $26,300.6 million. We note that sales jumped 3.3% to $26,122 million, while other revenues rose 9.5% to $396 million driven by the growth in Roundel ad business. Target witnessed unit share gains across all five core merchandising categories.
Meanwhile, comparable sales for the quarter under discussion increased 2.7%, surpassing our estimate of 2.3%. The comparable sales growth reflected a 1.4% increase in traffic and a 1.3% increase in the average transaction amount. Comparable store sales grew 3.2%, while comparable digital sales increased 0.3%. Same-day services led digital growth, most notably through drive-up service, which delivered high single-digit growth. Frequency categories, such as beauty, food and beverage and household essentials, drove comparable sales growth.
Target’s debit card penetration contracted 90 basis points to 10.8%, while credit card penetration decreased 10 basis points to 8.8%. The total REDcard penetration declined to 19.6% from the year-ago quarter’s 20.7%.
Margins
The gross margin decreased 330 basis points to 24.7%, reflecting higher markdown rates, inventory shrink, and merchandise and freight costs. Additionally, the increased compensation and headcount in distribution centers and the cost of managing the excess inventory also hurt the gross margin rate. Meanwhile, the operating income declined 49.2% to $1,022 million, while the operating margin shriveled to 3.9% from 7.8% in the year-ago period.
Other Financial Details
Target ended the quarter with cash and cash equivalents of $954 million, long-term debt and other borrowings of $14,237 million and shareholders’ investment of $11,019 million. During the quarter, Target paid out dividends of $497 million.
Management has incurred capital expenditures of $4.3 billion during the first three quarters of fiscal 2022, and plans to spend around $5.5 billion in the fiscal. The company didn't repurchase any shares in the third quarter.
On the store front, Target plans to conclude roughly 200 full remodel projects in the current fiscal. It also intends to complete about 200 fulfillment retrofits this year to support same-day services. The company is on track to add 23 new locations to the chain in the current fiscal year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -57.5% due to these changes.
VGM Scores
At this time, Target has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 indicates a downward shift. Notably, Target has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.