Shares of Target Corporation (TGT - Free Report) are up roughly 7% during the pre-market trading hours following impressive first-quarter fiscal 2019 performance and an upbeat view for the second quarter. 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 bottom line not only beat the respective Zacks Consensus Estimate but also increased year over year.
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This operator of general merchandise stores reported adjusted earnings of $1.53 per share that surpassed the Zacks Consensus Estimate of $1.43 and improved 15.9% from the prior-year period. This year-over-year growth can be attributable to higher sales and share repurchase activity.
Target now projects second-quarter adjusted earnings between $1.52 and $1.72 per share, the mid-point of which $1.62 is higher than $1.47 reported in the year-ago period. For fiscal 2019, management continues to anticipate adjusted earnings in the band of $5.75-$6.05 per share, up from $5.39 reported in fiscal 2018. The consensus estimates for the second quarter and fiscal 2019 are pegged at $1.58 and $5.82, respectively.
This Zacks Rank #2 (Buy) company generated sales of $17,401 million, up 5.1% year over year, while other revenue inched up 0.5% to $226 million. The Zacks Consensus Estimate for the quarter is $17,540 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 4.8% compared with 3% growth witnessed in the year-ago period. The number of transactions rose 4.3%, while the average transaction amount improved 0.5%. Comparable digital channel sales surged 42% and added 2.1 percentage points to comparable sales. Management envisions both the second quarter and fiscal 2019 comparable sales to increase in low-to-mid-single digit range.
Gross margin contracted 20 basis points to 29.6% due to increased digital fulfillment and supply chain costs, partly mitigated by the benefit of merchandising strategies. Operating margin expanded 20 basis points to 6.4%.
Target’s debit card penetration shrunk 40 basis points to 13.1%, while credit card penetration fell 20 basis points to 10.4%. Total REDcard penetration declined to 23.5% from 24.1% in the year-ago quarter.
Other Financial Details
During the quarter, Target repurchased shares worth $277 million and paid dividends of $330 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 $1,173 million, long-term debt and other borrowings of $11,357 million and shareholders’ investment of $11,117 million.
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