Target stock jumps as retailer blows past Wall Street expectations – CNBC

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Target‘s revenue and comparable sales fell less than some had feared giving investors hope that the retailer’s turnaround efforts will pay off in the long run.

The company has said it’s investing more than $7 billion in capital over the next three years, or about $1 billion in annual operating profits, starting in 2017, in order to “evolve” to meet consumers’ preferences today.

  • Earnings per share: $1.21, excluding items, vs. forecast of 91 cents, according to Thomson Reuters analysts’ consensus estimates.
  • Revenue: $16.02 billion vs. $15.62 billion estimate, analysts said.
  • Same-store sales: 1.3 percent drop vs. forecast of a 3.7 percent decline, according to FactSet.

On Wednesday, Target shares spiked in premarket trading after the discount retailer’s earnings report. But the stock is now off its highs, recently trading above 3 percent.

Target reported first-quarter same-store sales fell 1.3 percent, a narrower decline than the 3.7 percent forecast by analysts in a FactSet survey.

Target’s net income rose to $681 million, or $1.23 a share, in the first quarter, from $632 million, or $1.05 a share a year ago.

Excluding items in the latest period, Target earned $1.21 a share, outpacing analysts’ estimates of 91 cents a share from Thomson Reuters.

Revenue fell 1.1 percent to $16.02 billion, which was higher than the $15.62 billion analysts were expecting.

Target CEO Brian Cornell said the company showed “strong execution” in a “very choppy environment.”

“After starting the quarter with very soft trends, we saw improvement later in the quarter, particularly in March,” he said in a statement. “We are in the early stage of a multi-year effort to position Target for profitable, consistent long-term growth, and while we are confident in our plans, we are facing multiple headwinds in the current landscape. As a result, we will continue to plan our business prudently while preparing our team to chase business when we have an opportunity.”

Target saw a 2.2 percent drop in same-store sales at brick-and-mortar locations, which it attributed to a decline in customer visits, with shoppers picking up fewer items on average, the company said.

“The foremost issue is the quality of Target’s stores,” said Neil Saunders, managing director of GlobalData Retail, in a research note. “These are far too functional, change too infrequently, and offer very little in the way of inspiration. Such a position means that Target struggles to pull in customers — something our data shows is getting worse over time, especially among younger millennial consumers.”

Online, Target’s comparable digital channel sales rose 22 percent for the quarter, contributing 0.8 percentage points to overall same-store sales growth.

While Target has been focused on improving store traffic, big-box retail rival Wal-Mart has been bulking up its online operations by acquiring e-commerce platform Jet.com last year and recently rolling out free two-day shipping.

Target has so far been on the sidelines as far as deals go, and they have been slower in comparison to develop their online operations. Both retailers face increasing competition from Amazon.

Earlier this year, Cornell issued a gloomy forecast, warning analysts and investors that the retailer saw tough times ahead for the remainder of 2017. Shares plummeted on that notice, which predicts earnings to be between $3.80 and $4.20 per share this year.

The 2017 forecast reflects expectations for a low-single digit decline in same-store sales — something Cornell and his team reaffirmed on Wednesday, saying they continue to anticipate a low-single digit drop.

Target didn’t update it outlook for its adjusted earnings per share, but given the better-than-expected performance, the company said there is an “increased probability” that it will finish the year above the midpoint of its earlier forecast.

For the second quarter, Target said it also expects a low-single digit decline in comparable sales, and adjusted earnings per share of between 95 cents to $1.15.

“Target’s not out of the woods, yet,” Michael Lasser, a retail analyst for UBS, told CNBC Wednesday morning. “The road to improvement will be long.”

Looking ahead, Target’s top area of focus must be on lowering prices in order for the retailer to stay competitive, Lasser went on. The analyst said he’s paying particularly close attention to Target’s gross margin, to watch how the company’s expenses are changing.

The company has vowed to work on lowering its prices further to stay competitive with peers, while beefing up its grocery department and expanding its presence online.

Target quarterly same-store sales history 

Source: Target

“Target’s [first-quarter] performance … reinforces our view that its strategic shift will take time, and therefore potential progress is difficult to view through a short-term lens,” Moody’s retail analyst Charlie O’Shea wrote in an email.

“Given the scope of this transition, year-over-year comparisons will be difficult, though we believe online sales growth and operating cash flow levels will be meaningful data points. At present, Target’s strong balance sheet, excellent liquidity, and flexible financial policy regarding shareholder returns provide the company with sufficient credit support to execute its [turnaround] plan.”

As of Tuesday’s close, shares of Target have tumbled nearly 26 percent over the past 12 months and are down about 25 percent for the year-to-date period.

TGT 12-month performance 

Source: FactSet

Target stock jumps as retailer blows past Wall Street expectations – CNBC

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