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3 Key Takeaways from Target's (TGT) Q1 Earnings Report

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On Wednesday, Target Corp. (TGT - Free Report) reported its first quarter fiscal 2016 results, sending its stock sliding almost 9% in morning trading. The retailer delivered disappointing sales and guidance numbers, and is just the latest company in the industry to post weak quarterly results. Let’s take a look at three key takeaways from Target’s Q1 earnings report.

1. EPS beats estimates.

Adjusted earnings per share of $1.29 surpassed the Zacks Consensus Estimate of $1.20 per share as well as management guidance in the range of $1.15-1.25 per share. EPS grew 16.5% year-over-year thanks to an increase in traffic count, stable sales in signature categories, and successful cost cutting measures.

2. Share buybacks and dividends.

The retailer returned roughly $1.229 billion to its shareholders in the form of share repurchases and dividend payments. Target bought back 11.4 million shares at a price of $78.37 per share, aggregating $893 million, and paid dividends of $336 million.

3. Sales and guidance disappoint.

Target’s total sales declined 5.4% to $16.196 billion during the quarter from the prior year period, and missed the Zacks Consensus Estimate of $16.309 billion. Weak pharmacy and clinic segment sales impacted the top line.

Comparable sales, however, increased 1.2%, with comparable digital channel sales surged 23% and increased 0.6 percentage points to comparable sales growth. The number of transactions also jumped a modest 0.3%, while the average transaction amount grew 0.9%.

For Q2, Target now projects adjusted earnings in the range of $1.00-1.20 per share, well below the Zacks Consensus Estimate of $1.38 per share. The retailer also reaffirmed its fiscal 2016 earnings outlook in the range of $5.20-5.40 per share, with current estimates of $5.27 per share falling in the middle.

Bottom Line

During this past quarter, Target reported its lowest growth since 2014, when it was recovering from a data breach. CEO Brian Cornell told reporters on a conference call that “We have seen the impact of climate [he cites colder weather in the Northeast] and a more cautious consumer. We haven’t seen anything from a structural standpoint that gives us pause.” It is also safe to assume that the current boycott of the company by conservatives over transgender peoples’ rights to use a bathroom of their choice has had some effect.

Target is just the latest retailer to disappoint investors this quarter, along with department store giants Macy’s Inc. (M - Free Report) and Nordstrom Inc. (JWN - Free Report) , specialty department store chain Kohl’s Corp (KSS - Free Report) , and home improvement store chain Home Depot (HD - Free Report) .

Investors should keep an eye out for Gap Inc. (GPS - Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) , who both report on May 19. Wholesale bellwether Costco (COST - Free Report) reports on May 25.

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