Earnings Preview: Target

Target (TGT) is expected to report Q4 earnings Tuesday with a conference call scheduled for 10:00 a.m. ET.

Guidance

Analysts are looking for a profit of $1.22 on revenue of $20B. The consensus range is $1.17 to $1.26 for EPS, and revenue of $19.27B to $21.13B, according to First Call. Target recently reported its January same store sales were down -1.1% vs. consensus of down -0.6%, near the lower-end of the planned range, on lower traffic. As consumers cut back their spending amid higher gas prices and increased job cuts, many analysts believe consumers are choosing to spend at Wal-Mart (WMT) rather than Target.

Analyst Views

Citigroup recently downgraded Target to Sell from Hold, saying that the discount retailer has lost focus in women's apparel, one of its higher-margin businesses, and they believe an increased credit risk could weigh on earnings. Further credit deterioration would hurt the company's credit card profitability in 2008, Citigroup said. Target is not perceived as a destination for basic needs, the analysts said, which they believe is why the retailer's traffic trends are weaker than those of Wal-Mart.

After meeting with the company's management, Wachovia thinks the company is unlikely to outperform in the next few months, and they think the Street's estimates for the company will drop. The firm prefers Wal-Mart and Costco (COST), which they view as more defensive. Wachovia maintained a Market Perform rating on Target. Analysts and investors will also look for hints on plans for its credit-card operations. Next event: Target is expected to release its February sales on March 6.