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Check Out Target's (TGT) Probability to Beat in Q1 Earnings

Zacks Equity Research

Target Corporation TGT is scheduled to release first-quarter fiscal 2019 results on May 22. Following decent results in the final quarter of fiscal 2018 on the back of impressive holiday sales number, investors are expecting the company to replicate its performance in the quarter under review. Efforts to enhance omni-channel capacities, come up with new brands, remodel stores and expand same-day delivery options will play a crucial role in determining the upcoming quarterly results.

How Are Estimates Shaping Up?

After registering bottom-line increase of 12.5% in the fourth quarter of fiscal 2018, Target is likely to deliver year-over-year growth in the first quarter of fiscal 2019 as well. The Zacks Consensus Estimate for the quarter under review is pegged at $1.42, indicating an improvement of roughly 7.6% from the year-ago quarter. We note that the Zacks Consensus Estimate has decreased by a penny in the last 30 days.

The Zacks Consensus Estimate for revenues is pegged at $17,540 million, suggesting growth of about 4.5% from the prior-year period.

Target Corporation Price, Consensus and EPS Surprise

 

Target Corporation Price, Consensus and EPS Surprise

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

Factors to Know

Target has chalked out strategies to adapt to the fast-changing retail landscape. The company has undertaken rationalization of supply chain with same-day delivery of in-store purchases, and technology and process improvements. Further, the company’s digitization initiative is paying off quite well. We note that comparable digital channel sales had surged 31% during the fourth quarter of fiscal 2018 and added 2.4 percentage points to comparable sales.

Same-Day Delivery to Lift Sales

Retailers are ensuring speedy delivery to customers. In fact, retailers are either acquiring or partnering with delivery service companies for same-day delivery to stay ahead in the race. With the aim of capitalizing on the booming online grocery delivery market, Target teamed up with popular online grocery delivery service Instacart. The company also made significant headway in the same-day delivery race by acquiring Internet-based grocery delivery service Shipt to provide same-day delivery of groceries, essentials, home, electronics and other products.

Restock Program & Other Initiatives

The company has rolled out Target Restock program that enables customers to restock their shipping box with essential items online and get them delivered at door steps by the next business day for a nominal charge. Drive Up, an app-based service, is another initiative to expedite the shopping process. The service enables customers to place orders using the Target app and have it delivered to their cars. All these efforts are likely to impact the upcoming quarterly results favorably.

Management had earlier guided comparable sales growth in low-to-mid-single digit during the first quarter of fiscal 2019. For the quarter, adjusted earnings are envisioned to be between $1.32 and $1.52 compared with $1.32 reported in the year-ago quarter.

Will Margins Remain Under Pressure?

We note that the gross margin shriveled 20 bps, 10 bps, 90 bps and 40 bps during the first, second, third and fourth quarters of fiscal 2018, respectively. During the final quarter, gross margin contracted owing to increased digital fulfillment and supply chain costs. Operating margin remained flat at 4.9%. Any increase in depreciation and amortization on account of remodel program, rise in costs due to new fulfillment options, higher wages and incremental investments may weigh on margins. Management expects to witness a marginal decline in the operating margin during the first quarter of fiscal 2019.

What Does the Zacks Model Suggest?

What’s the Probability of Earnings Beat?

Our proven model shows that Target is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP— for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Target has a Zacks Rank #2 and an Earnings ESP of +0.42%. This makes us reasonably confident of an earnings beat. The company’s bottom-line has underperformed the Zacks Consensus Estimate by average of 0.3% in the trailing four quarters. This operator of general merchandise stores recorded in line earnings in the last reported quarter.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post earnings beat.

V.F. Corporation VFC has an Earnings ESP of +0.69% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco COST has an Earnings ESP of +2.10% and a Zacks Rank #3.

Deckers DECK has an Earnings ESP of +53.19% and a Zacks Rank #3.

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