Wednesday, 21 October 2020

Target (TGT) Q2 Earnings Likely to Increase: Here’s Why

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Target Corporation TGT is scheduled to release second-quarter fiscal 2018 results on Aug 22. Well the obvious question that comes to mind is whether this operator of general merchandise stores will be able to deliver positive earnings surprise in the quarter to be reported. It reported negative earnings surprises of 4.4% and 1.4% in the preceding two quarters.

After registering bottom-line increase of 9.4% in the first quarter, Target is likely to record year-over-year growth in the second quarter as well. The Zacks Consensus Estimate for the quarter under review is pegged at $1.40, reflecting year-over-year growth of roughly 14% from $1.23 reported in the year-ago quarter. We note that the Zacks Consensus Estimate has increased by a couple of cents in the last seven days.

Analysts polled by Zacks now project revenues of $17,313 million, up about 5.4% from $16,429 million in the year-ago quarter. If all goes well, this will be the sixth straight quarter of top-line beat.

Here Are the Deciding Factors

Strategic Endeavors Bode Well

Target has chalked out strategies to adapt to the fast-changing retail landscape. The company 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.

Same-Day Delivery to Lift Sales
Retailers are ensuring speedy delivery to customers. In fact, retailers are either acquiring or partnering with delivery service companies for same-day delivery to stay ahead in the race. With the aim of capitalizing on the booming online grocery delivery market, Target teamed up with popular online grocery delivery service Instacart. The company further made significant headway in the same-day delivery race by acquiring Internet-based grocery delivery service Shipt to provide same-day delivery of groceries, essentials, home, electronics as well as other products.

Restock Program & Other Initiatives

The company has rolled out Target Restock program that allows customers to restock their shipping box with essential items online and get them delivered at door steps by the next business day for a nominal charge. Drive Up, an app-based service, is another initiative to expedite the shopping process. The service allows customers to place orders using the Target app and have it delivered to their cars.

All these efforts are likely to impact the quarterly results favorably. Management had earlier guided second-quarter fiscal 2018 comparable sales to be up in the low to mid-single digit range and projected earnings in the band of $1.30-$1.50.

Will Margins Remain Under Pressure?

Margin, an important financial metric that gives an indication about the company’s health, has been declining. We note that the operating margin shriveled 80 basis points (bps), 90 bps, 120 bps and 140 bps to 7.4%, 6.8%, 5.2% and 5.1% during the first, second, third and fourth quarter of fiscal 2017, respectively. The same shriveled 90 bps to 6.2% during the first quarter of fiscal 2018. Management expects operating margin to contract roughly 40 bps in the second quarter. Target informed that increase in depreciation and amortization on account of its remodel program, rise in costs due to new fulfillment options, higher wages and incremental investments are the primary headwinds.

Target Corporation Price, Consensus and EPS Surprise

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

What Does the Zacks Model Suggest?

Our proven model shows that Target is likely to beat estimates this quarter. A stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter .

Target has a Zacks Rank #2 and an Earnings ESP of +0.12%. This makes us reasonably confident of an earnings beat.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post earnings beat.

Best Buy BBY has an Earnings ESP of +1.46% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here .

Kohl’s Corporation KSS has an Earnings ESP of +0.24% and a Zacks Rank #2.

Ross Stores ROST has an Earnings ESP of +2.91% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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