Shares of Target Corporation (TGT - Free Report) are up roughly 6% during the pre-market trading hours following decent fourth-quarter fiscal 2018 performance and an upbeat fiscal 2019 view. This Minneapolis-based company’s impressive holiday sales number formed the perfect base for the final quarter. Robust traffic, favorable store comps and a surge in comparable digital sales are clearly yielding results.
Let’s Delve Deeper
This operator of general merchandise stores reported adjusted earnings of $1.53 per share that came in line with the Zacks Consensus Estimate and improved 12.5% from the prior-year period. This year-over-year growth can be attributable to fall in SG&A expenses, lower net interest expense and share repurchase activity.
Target now projects fiscal 2019 adjusted earnings in the band of $5.75-$6.05 per share, up from $5.39 reported in fiscal 2018. For the first quarter, adjusted earnings are envisioned to be between $1.32 and $1.52. The consensus estimates for the first quarter and fiscal 2019 are pegged at $1.44 and $5.59, respectively.
The company generated sales of $22,734 million that remained flat year over year, while other revenue fell 2.5% to $243 million. The Zacks Consensus Estimate for the quarter is $23,147 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. We note that shares of this Zacks Rank #3 (Hold) have gained roughly 5% in a year compared with the industry’s growth of 4%.
Meanwhile, comparable sales for the quarter increased 5.3% compared with 3.6% growth witnessed in the year-ago period. The number of transactions rose 4.5%, while the average transaction amount improved 0.8%. Comparable digital channel sales surged 31% and added 2.4 percentage points to comparable sales. Management now anticipates comparable sales growth in low-to-mid-single digit during the both first quarter and fiscal 2019.
Gross margin contracted 40 basis points to 25.7% due to increased digital fulfillment and supply chain costs, partly mitigated by the benefit of merchandising strategies. Operating margin remained flat at 4.9%.
Target’s debit card penetration contracted 30 basis points to 12.6%, while credit card penetration fell 30 basis points to 11%. Total REDcard penetration declined to 23.6% from 24.2% in the year-ago quarter.
Other Financial Details
During the quarter, Target repurchased shares worth $617 million and paid dividends of $334 million. The company still had about $1.6 billion remaining under its $5 billion share buyback program. The company ended the quarter with cash and cash equivalents of $1,556 million, long-term debt and other borrowings of $10,223 million and shareholders’ investment of $11,297 million.
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