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Target (TGT) Q4 Earnings Surpass Estimates, Increase Y/Y

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Target Corporation TGT came up with fourth-quarter fiscal 2019 results, which marked the fourth straight quarter of an earnings beat. However, total revenues fell shy of the Zacks Consensus Estimate. On a brighter note, both the top and the bottom line continued to increase year over year. Again, management highlighted that this was the 11th successive quarter of comparable sales growth buoyed by decent performance in both stores and digital channels.

However, we note that the rate of comparable sales growth decelerated on a sequential basis. This may be due to disappointing holiday season with sales coming in below expectations. Softer-than-expected performance across Electronics, Toys and portions of Home assortment hurt the overall holiday sales. Nonetheless, Target continued to gain market share across core merchandise categories, namely Apparel, Essentials & Beauty and Food & Beverage.

Let’s Delve Deeper

This operator of general merchandise stores reported adjusted earnings of $1.69 per share that surpassed the Zacks Consensus Estimate of $1.66 and improved 10.6% from the prior-year period. This year-over-year growth can be attributable to higher sales and share repurchase activity.

Target envisions first-quarter fiscal 2020 adjusted earnings between $1.55 and $1.75 per share, the mid-point of which — $1.65 — is higher than $1.53 reported in the year-ago period and in line with the Zacks Consensus Estimate. For fiscal 2020, management anticipates adjusted earnings in the band of $6.70-$7.00, the mid-point of which — $6.85 — is higher than the Zacks Consensus Estimate of $6.84. The company had reported earnings of $6.39 in fiscal 2019.

The company generated total revenues of $23,398 million that increased 1.8% from the year-ago period but fell short of the Zacks Consensus Estimate of $23,472 million. We note that sales jumped 1.8% to $23,133 million, while other revenue rose 9.3% to $265 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.

Target Corporation Price, Consensus and EPS Surprise

Target Corporation Price, Consensus and EPS Surprise

Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote

Meanwhile, comparable sales for the quarter increased 1.5% compared with 5.3% growth witnessed in the year-ago period. The number of transactions rose 1.3%, while the average transaction amount improved 0.2%. Comparable digital channel sales surged 20% and added 2.2 percentage points to comparable sales. Management envisions low-single digit increase in comparable sales during the first quarter as well as fiscal 2020.

Gross margin expanded 60 basis points to 26.3% during the quarter on account of cost optimization, pricing, promotions and assortment, and favorable category sales mix.

Operating income increased 7.3% to $1,198 million, whereas operating margin expanded 20 basis points to 5.1%. Target expects mid-single digit increase in operating income in both the first quarter and fiscal 2020.

Target’s debit card penetration shrunk 20 basis points to 12.4%, while credit card penetration fell 10 basis points to 10.9%. Total REDcard penetration declined to 23.3% from 23.6% in the year-ago quarter.

Other Financial Details

During the quarter, Target repurchased shares worth $606 million and paid dividends of $334 million. The company still had about $0.1 billion remaining under its $5 billion share buyback program approved in 2016. In September 2019, the company’s board authorized a new $5 billion share repurchase program.

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $2,577 million, long-term debt and other borrowings of $11,338 million and shareholders’ investment of $11,833 million.

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