Shares of Target Corporation (TGT - Free Report) are up roughly 15% during the pre-market trading hours following an impressive second-quarter performance and an upbeat outlook for fiscal 2019. 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 the bottom line not only beat the respective Zacks Consensus Estimate but also increased year over year.
Notably, shares of this Zacks Rank #2 (Buy) have increased 18% and comfortably outpaced the industry’s growth of 15% in the past six months.
Let’s Delve Deeper
This operator of general merchandise stores reported adjusted earnings of $1.82 per share that surpassed the Zacks Consensus Estimate of $1.61 and improved 23.9% from the prior-year period. This year-over-year growth can be attributable to higher sales and share repurchase activity.
Target now projects third-quarter adjusted earnings between $1.04 and $1.24 per share, the mid-point of which $1.14 is higher than $1.09 reported in the year-ago period. For fiscal 2019, management now anticipates adjusted earnings in the band of $5.90-$6.20, up from the prior range of $5.75-$6.05. The company had reported earnings of $5.39 in fiscal 2018. The Zacks Consensus Estimate for the third quarter and fiscal 2019 currently stands at pegged at $1.17 and $5.92, respectively.
The company generated total revenue of $18,422 million that increased 3.6% from the year-ago period and surpassed the Zacks Consensus Estimate of $18,330 million. We note that sales jumped 3.6% to $18,183 million, while other revenue rose 6.3% to $239 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 3.4% compared with 6.5% growth witnessed in the year-ago period. The number of transactions rose 2.4%, while the average transaction amount improved 0.9%. Comparable digital channel sales surged 34% and added 1.8 percentage points to comparable sales. Management now envisions comparable sales to increase about 3.4% both in the third quarter and second half of fiscal 2019.
Gross margin expanded 30 basis points to 30.6% during the quarter on account of cost optimization, pricing, promotions and assortment, and favorable category sales mix. Operating margin expanded 80 basis points to 7.2%.
Target’s debit card penetration shrunk 50 basis points to 12.5%, while credit card penetration fell 20 basis points to 10.7%. Total REDcard penetration declined to 23.2% from 23.9% in the year-ago quarter.
Other Financial Details
During the quarter, Target repurchased shares worth $341 million and paid dividends of $328 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 $1,656 million, long-term debt and other borrowings of $10,365 million and shareholders’ investment of $11,836 million.
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