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Target (TGT) Q2 Earnings Preview: What's in Store for the Retail Giant?

Christopher Vargas

Target TGT is set to report its second quarter earnings before the opening bell on Wednesday. TGT has soared 30.1% year-to-date, outperforming the broader non-food retail market. The company is coming off a strong first quarter that helped shares rise in the first half of 2019. Rival company Walmart WMT reported earnings last Thursday and led the stock market rebound. Can Target have similar success in its earnings report and sustain the lead it has over Walmart YTD? Let’s take a closer look at what to expect from the super store giant in Q2 and beyond.

Q1 Recap

Founded in 1902 and headquartered in Minneapolis, Minnesota, Target saw heavy traffic and solid comparable digital channel sales in Q1. The company is adapting quickly to the changing retail ecosystem and deploying resources to enhance omni-channel capacities, come up with new brands, remodel stores, and expand same-day delivery options. The company was able to post better than expected first quarter earnings and revenues, and both grew Y/Y. The company also provided an upbeat outlook for Q2 and beyond.

Target generated $17.63 billion in revenue and reported earnings of $1.53 per share, beating our estimates by 0.5% and 6.99%, respectively. The company’s top line grew 5% Y/Y and its bottom line jumped 15.4%. The retail giant’s net earnings increased 10.8% to $795 million and comparable sales increased 4.8% in Q2. Additionally, TGT raised its guidance for Q2 and fiscal 2019 in its Q1 report. Target continues to anticipate yearly EPS between $5.75-$6.05, up from $5.39 per share reported for fiscal 2018.

Outlook for Q2 and Beyond

Consensus estimates call for the company’s bottom line to increase 9.52% to $1.61 per share on the back of a sales climb of 3.12% to $18.33 billion. Comparable store sales are forecasted to increase 2.83%. The total number of operating stores is expected to jump to 1,858.

Looking ahead to fiscal 2019, consensus estimates are anticipating earnings to grow 9.83% to $5.92 per share while revenue rallies 3.64% to $78.1 billion. TGT has beaten estimates twice in the past four reported quarter for an average EPS surprise of 2.55%.

In mid-June, Target’s board of directors elected to increase the stock’s dividend by 3.1% to $0.66 a share. The company’s dividend has steadily increased over the past five fiscal years, and currently boasts a yield of nearly 3%.

In late January, Target announced that it would be launching same-day delivery in Hawaii’s metro areas: Honolulu, Hilo, Kahului and Kailua. This announcement comes as one of the company’s latest initiatives to compete with rival company’s delivery times. Target is currently sitting at a Zacks Rank #2 (Buy) and has traded at a discount relative to its respective industry for the past 3 years. The company’s current valuation provides investors with a solid entry point for a company that seems poised to continue its success in the back half of 2019.

 

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