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Target's (TGT) Q3 Earnings Top, Comparable Sales Rise Y/Y

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·5 min read
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  • TGT
  • BOOT
  • TSCO
  • COST

Target Corporation TGT continued with its decent performance in third-quarter fiscal 2021, wherein both the top and the bottom line not only surpassed the Zacks Consensus Estimate but also grew year over year. Comparable sales increased for the 18th successive quarter. The metric gained from strength in both store and digital channels.

However, digital comparable sales grew at a lower rate compared with the year-ago period when the pandemic was at its peak and consumers made bulk of their purchases online. Moreover, margins remained under pressure during the quarter, thanks to supply-chain bottlenecks and higher freight costs.

Without a doubt, Target has been focusing on store refurbishments, enhancing digital capabilities and expanding same-day fulfillment options, keeping speed and convenience in mind. We note that all five core merchandise categories delivered double-digit comparable sales growth during the reported quarter. Markedly, the general merchandise retailer raised its comparable sales projection for the final quarter.

We note that shares of this Minneapolis, MN-based company have increased 30% in the past six months compared with the industry’s rise of 18.3%.

Sales & Earnings Picture

Target reported adjusted earnings of $3.03 per share that outshone the Zacks Consensus Estimate of $2.87 and rose 8.7% from the year-ago period.

The big-box retailer generated total revenues of $25,652 million that increased 13.3% year over year and outpaced the Zacks Consensus Estimate of $24,906 million. We note that sales jumped 13.2% to $25,290 million, while other revenues rose 22.3% to $362 million.

Target Corporation Price, Consensus and EPS Surprise

Target Corporation Price, Consensus and EPS Surprise
Target Corporation Price, Consensus and EPS Surprise

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

Let’s Delve Deeper

Rise in sales was led by Apparel, Food & Beverage, Essentials & Beauty, Home and Hardlines categories. Stores fulfilled more than 95% of the company’s sales in the quarter. Same-day services (Order Pick Up, Drive Up and Shipt) grew approximately 60%. Sales fulfilled by Shipt were up more than 30% year over year and sales through Drive-Up were up more than 80% during the quarter. We note that Order Pickup rose more than 30%.

Meanwhile, comparable sales for the quarter increased 12.7%, backed by a 12.9% jump in the number of transactions. However, average transaction amount dropped a marginal 0.2%. Again, digital comparable sales grew 29%, while comparable stores sales rose 9.7% during the quarter.

Target’s debit card penetration contracted 50 basis points (bps) to 11.7%, while credit card penetration shrunk 40 bps to 8.9%. Total REDcard penetration declined to 20.7% from the year-ago quarter’s 21.5%.

Margins

During the quarter, gross margin decreased 260 bps to 28% owing to higher merchandise and freight costs, increased inventory shrink, and rise in supply-chain costs from increased compensation and headcount in the distribution centers. Meanwhile, operating margin shriveled 70 bps to 7.8%.

Other Financial Details

During the third quarter, Target paid dividends of $440 million. This reflected an increase of 32.4% in the dividend per share. The company repurchased shares worth $2.2 billion, thereby retiring 8.8 million shares at an average price of $246.80. At the end of the quarter, the company had roughly $14.6 billion remaining under its share-buyback program approved in August 2021.

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $5,753 million, long-term debt and other borrowings of $11,586 million and shareholders’ investment of $13,803 million.

Outlook

Management now envisions high-single-digit to low-double-digit growth in fourth-quarter comparable sales, compared with the prior view of a high-single-digit increase. It currently expects full-year operating margin rate to be 8% or higher.

3 Stocks Hogging the Limelight

We have highlighted three better-ranked stocks in the Retail - Wholesale sector, namely, Boot Barn Holdings BOOT, Tractor Supply Company TSCO and Costco COST.

Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). Shares of the company have jumped 70.3% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and earnings per share (EPS) suggests growth of 54.4% and 183.3%, respectively, from the year-ago period. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.

Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of the company have jumped 24.6% in the past six months.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 19% and 23.9%, respectively, from the year-ago period. TSCO has an expected EPS growth rate of 9.6% for three-five years.

Costco, which operates membership warehouses, carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 7.7%, on average. Shares of the company have jumped 38.1% in the past six months.

The Zacks Consensus Estimate for Costco’s current financial year sales and EPS suggests growth of 9.6% and 9.7%, respectively, from the year-ago period. COST has an expected EPS growth rate of 8.6% for three-five years.


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Costco Wholesale Corporation (COST) : Free Stock Analysis Report

Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report

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