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11/15/2017

Target Q3 tops Street but holiday forecast worries

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A warning about a "highly competitive" holiday season overshadowed what was, in many ways, a positive quarter for Target Corp.

Sales rose 1.4% to $16.67 billion in the quarter, up from $16.4 billion in the year-ago period. Analysts had expected $16.61 billion.

Same-store sales inched up 0.9%, also more than expected. Comparable traffic grew 1.4%.

Target's comparable digital channel sales increased 24%, and contributed 0.8 percentage points to comparable sales growth. Target's online sales now account for 4.3% of total sales, up from 3.5% last year.

Net income fell to $480 million, or 88 cents a share, amid higher costs, compared with $608 million, or $1.06 per share, a year earlier. Adjusted earnings per share were $0.91, compared with a forecast profit of 86 cents per share, and down 13.1% from the same period last year.

Target devoted $847 million to capital investment in the quarter, during which it opened 12 stores and completed 37 store remodels as part of its ongoing store overhaul initiative. It said it seeing an average 2%- to 4% comp sales lift in remodeled units.

The chain's quarterly SG&A expense rate was 21.1%, compared with 20.3% last year, driven by higher compensation costs. Starting in October, its minimum hourly wage was increased to $11 per hour.

“We’re very pleased with Target’s third quarter performance, including traffic and sales growth that demonstrate we’re building on the progress we saw in the first half of the year,” said Brian Cornell, chairman and CEO. “The investments we’re making in our business will help Target drive long-term success and ensure we’re well positioned to deliver for guests in the all-important holiday season. While we expect the fourth-quarter environment to be highly competitive, we are very confident in our holiday season plans.”

Analyst Neil Saunders, managing director, GlobalData Retail, commented while Target is making progress, it needs to be bolder and more creative.

"Many legacy issues, such as a lack of stock control which leaves frequent gaps on shelves, also need to be resolved," he noted. "All that said, the company is now in a much stronger position than it was at this time last year which bodes well for the holiday quarter and beyond." For more, click here.

For the fourth quarter ending in January, Target expects per-share earnings to range from $1.05 to $1.25, missing Wall Street projections for $1.27. It Target expects fourth quarter 2017 comparable sales growth of flat to 2%.