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Target (TGT) Picks Up on Q3 Earnings Beat, Upbeat FY19 View

Zacks Equity Research

Shares of Target Corporation TGT are up roughly 10% during the pre-market trading hours following an impressive third-quarter performance and an upbeat outlook for fiscal 2019. Robust traffic, favorable store comps and a surge in comparable digital sales are clearly working in favor of this Minneapolis-based company. Both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also increased year over year.

Notably, shares of this Zacks Rank #2 (Buy) company have rallied 54% and comfortably outperformed the industry’s rise of 23% in the past six months.

Let’s Delve Deeper

This operator of general merchandise stores reported adjusted earnings of $1.36 per share that surpassed the Zacks Consensus Estimate of $1.19 and improved 24.9% from the prior-year period. This year-over-year growth can be attributable to higher sales and share repurchase activity.

Target envisions fourth-quarter adjusted earnings between $1.54 and $1.74 per share, the mid-point of which — $1.64 — is higher than $1.53 reported in the year-ago period and in line with the Zacks Consensus Estimate. For fiscal 2019, management now anticipates adjusted earnings in the band of $6.25-$6.45, up from the prior range of $5.90-$6.20. The company had reported earnings of $5.39 in fiscal 2018. The Zacks Consensus Estimate for fiscal 2019 currently stands at $6.17.

The company generated total revenues of $18,665 million that increased 4.7% from the year-ago period and surpassed the Zacks Consensus Estimate of $18,467 million. We note that sales jumped 4.7% to $18,414 million, while other revenue rose 8.8% to $251 million.

Target Corporation Price, Consensus and EPS Surprise

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.

Meanwhile, comparable sales for the quarter increased 4.5% compared with 5.1% growth witnessed in the year-ago period. The number of transactions rose 3.1%, while the average transaction amount improved 1.4%. Comparable digital channel sales surged 31% and added 1.7 percentage points to comparable sales. Management envisions comparable sales to increase 3-4% in the final quarter of fiscal 2019.

Gross margin expanded 110 basis points to 29.8% during the quarter on account of cost optimization, pricing, promotions and assortment, and favorable category sales mix. Operating margin expanded 80 basis points to 5.4%.

Target’s debit card penetration shrunk 40 basis points to 12.5%, while credit card penetration fell 10 basis points to 10.7%. Total REDcard penetration declined to 23.1% from 23.7% in the year-ago quarter.

Other Financial Details

During the quarter, Target repurchased shares worth $294 million and paid dividends of $337 million. The company still had about $0.3 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.

The company ended the quarter with cash and cash equivalents of $969 million, long-term debt and other borrowings of $10,513 million and shareholders’ investment of $11,545 million.

Check These 3 Trending Stocks

Burlington Stores BURL has a long-term earnings growth rate of 15.9% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Costco COST has a long-term earnings growth rate of 8.5%. The stock carries a Zacks Rank #2.

Ross Stores ROST has a long-term earnings growth rate of 10.5%. The stock carries a Zacks Rank #2.

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