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Target (TGT) Q1 Earnings & Revenue Top Estimates, Comps Up

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Target Corporation (TGT - Free Report) came up with first-quarter fiscal 2020 results, wherein both top and bottom lines beat the Zacks Consensus Estimate and revenues grew year over year. Notably, earnings marked its fifth straight beat and comparable sales increased for the 12th successive quarter. Comparable sales particularly gained from strength in the digital channel, given customers’ increased shift to online shopping amid coronavirus-led social distancing. However, the bottom line tumbled year over year, bearing the unfavorable impacts of increased employee pay and benefits, along with higher investments undertaken to preserve safety and health of customers.

Target withdrew its fiscal 2020 guidance on Mar 25 due to the uncertainty surrounding the impact of COVID-19. Due to the prevailing ambiguity, management did not issue any guidance for the fiscal second quarter. Also, it did not update its full-year view.

Shares of this Minneapolis, Minnesota-based company gained more than 1% during the pre-market trading session on May 20. Further, Target’s shares have increased 5.3% in the past three months, as against the industry’s decline of 8.9%.

Target Corporation Price, Consensus and EPS Surprise

Target Corporation Price, Consensus and EPS Surprise

Let’s Delve Deeper

This operator of general merchandise stores reported adjusted earnings of 59 cents per share that surpassed the Zacks Consensus Estimate of 46 cents. However, the metric slumped 61.4% from the prior-year period. The bottom-line results reflect major additional employee payments and benefits, along with investments undertaken to preserve safety and health of customers and team members amid the coronavirus crisis.

The company generated total revenues of $19,615 million that increased 11.3% from the year-ago period and outpaced the Zacks Consensus Estimate of $19,099.8 million. We note that sales jumped 11.3% to $19,371 million, while other revenues were up 7.7% to $244 million.

Meanwhile, comparable sales for the quarter increased 10.8%, backed by a 12.5% jump in average basket – thanks to customers’ lesser but larger shopping trips amid the pandemic. The number of transactions dipped 1.5%, while the average transaction amount improved 12.5%. Comparable digital channel sales surged 141% and added 9.9 percentage points to comparable sales. Store originated comparable sales inched up 0.9%. The company witnessed an increase in market share in all five core merchandise categories.  

Gross margin contracted 450 basis points to 25.1% during the quarter on account of cost and inventory impairments; adverse category mix as customers hoarded stocks of lower-margin items like Essentials and Food & Beverage, as well as inflated digital and supply-chain expenses stemming from a major surge in digital volumes. Also, investments in wages and benefits clipped margins.

Operating income slumped 58.7% to $468 million, while operating margin collapsed 400 basis points to 2.4%.

Target’s debit card penetration shrunk 40 basis points to 12.7%, while credit card penetration fell 70 basis points to 9.7%. Total REDcard penetration declined to 22.4% from the year-ago quarter’s 23.5%.

Other Financial Details

During the reported quarter, Target repurchased shares worth $609 million and paid dividends of $332 million. The company had $4.5 billion remaining under its $5-billion share-buyback program approved last September. However, on Mar 25, Target informed that it has suspended its share-buyback plan as part of the company’s efforts to preserve financial flexibility amid the crisis.

This Zacks Rank #4 (Sell) company ended the quarter with cash and cash equivalents of $4,566 million, long-term debt and other borrowings of $14,073 million and shareholders’ investment of $11,169 million.

Better-Ranked Stocks in Retail

Sprouts Farmers Market (SFM - Free Report) has a trailing four-quarter positive average earnings surprise of 37.2% and sports a Zacks Rank #1 (Strong Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

SpartanNash (SPTN - Free Report) , also a Zacks Rank #1 stock, has a positive earnings surprise of 15% for the last reported quarter.

Office Depot (ODP - Free Report) has a long-term earnings growth rate of 6.8%. Currently, it carries a Zacks Rank #2 (Buy).

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