Target (TGT) reported earnings for the fourth quarter this morning, beating expectations but leaving as many questions as answers. The discounter earned $1.65 on $22.7 billion in revenues compared to estimates of $1.48 and $22.6b. For the current quarter Target expects to earn $1.10 to $1.20 compared to previous guidance of $1.05.
At first blush the results far exceeded the numbers posted by Wal-Mart (WMT) last week but they still left much to be desired. For one thing the guidance was confusing as it includes an assortment of one-time charges related to Target's expansion into Canada.
There's also the pesky issue of margins. In the U.S. Target saw its gross fall 60 basis points in Q4 and 40 basis points for 2012. An acceleration of a declining margin trend is hard to overlook.
Retail guru and author Hitha Prabhakar has a couple more questions for the company. "Two things here, Canada and their expansion and this payroll tax," she says in the attached video. January same store sales were positive but that just means Target was able to move marked down goods. That shows good execution but being able to sell stuff at cost is hardly an investment thesis.
It's not all toil and tears for the company; America is finally starting to spend on themeslves again, upping their wardrobes and some housing items. Prabhakar thinks that gives Target a tailwind.
"I have a buy on it, I love the stock," she says. "People are trying to revamp their wardrobes and they're trying to revamp their homewares and their housewares and they want to redecorate their homes. What we're going to see now is people looking to Target to go ahead and do that."
If Prabhakar is right on the larger trend, Target stock is a compelling "buy the dip" value. In early trading the Street is taking a sell first, ask questions later approach, but that can obviously change on a dime.
Is Target a better value than Wal-Mart at these prices or is it time for investors to shop elsewhere? Let us know what you think in the comment section below or via Twitter @jeffmacke.