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Digital Sales to Play Key Role in Target's (TGT) Q1 Earnings

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Target Corporation’s (TGT - Free Report) first-quarter fiscal 2020 results, slated to release on May 20, are likely to reflect strength in digital sales.

Incidentally, the company recently provided a financial update to its first-quarter performance, as of Apr 23. The company said that it registered a sharp rise in comparable sales, courtesy of booming digital sales as consumers are buying essentials from home amid the lockdown. Digital sales started shooting up in the latter part of March. The trend continued in April and accelerated significantly from the middle of the month. The company witnessed higher demand for same-day fulfillment services and market-share gains across core merchandising categories.

In the first quarter (as of Apr 23), the company saw more than 7% advancement in comparable sales, with digital channels recording sales growth of more than 100%. Sales have been particularly strong in the Essentials and Food & Beverage categories, given the burgeoning demand for essential products amid the pandemic-led situation.

Target Corporation Price and EPS Surprise

Target Corporation Price and EPS Surprise

Well, the departmental store retailer has long been exploring options to keep pace with the evolving retail environment. To this end, Target has been deploying resources to enhance omnichannel capacities, introduce brands, remodel or refurbish stores, and expand same-day delivery options. Target’s efforts to make the most of the booming online grocery delivery market have been yielding results. In connection with this, the company’s partnership with Instacart, buyouts of Shipt and Grand Junction, and roll out of the Target Restock program are noteworthy. Also, Target rolled out a loyalty program — Target Circle — nationwide on Oct 6, 2019, aimed at enhancing customers’ shopping experience. 

The role of such initiatives becomes more vital in situations like these, wherein social distancing has led to increased online shopping. Clearly, the coronavirus-led stockpiling of essential items along with consumers’ increased shift to online purchasing seems to have worked well for Target’s sales in the quarter under review. Even other retailers like Walmart (WMT - Free Report) , Kroger (KR - Free Report) and Costco (COST - Free Report) are seeing increased stockpiling trends amid the crisis.

Meanwhile, the Zacks Consensus Estimate for Target’s first-quarter revenues is pegged at $18.9 billion, indicating a rise of almost 7% from the figure reported in the year-ago quarter. The consensus mark for earnings has declined by 6.4% over the past seven days from 78 cents per share to 73 cents. This suggests a slump of 52.3% from the year-ago period’s reported figure.

Other Trends

Despite the upsides, Target was skeptical about its first-quarter profit due to a number of factors. While providing its financial update on Apr 23, management highlighted various factors that are likely to have adversely impacted profitability in the quarter under review. These include investments in pay and benefits for frontline team members, a shift in channel mix toward digital fulfillment, transition in category mix toward lower-margin categories and inventory write-downs in Apparel & Accessories due to a sharp deceleration in the sales trend. Management stated that cumulatively these factors are expected to have hurt the operating margin rate by more than 5 percentage points in the first quarter. (Read More: Factors to Know Ahead of Target's Q1 Earnings Release)

Target currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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