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Will Weak Guidance Sink Target?

Shock Exchange profile picture
Shock Exchange


  • TGT is expected to deliver strong earnings on the strength of the holiday season.
  • Digital sales are expected to be ebullient, but they could come with lower margins and higher SG&A expense to retain customers.
  • The key is what type of guidance management gives for next quarter.
  • TGT is a hold into earnings.

Source: merchandisingmatters.com

Target (NYSE:TGT) reports quarterly earnings Tuesday. Analysts expect revenue of $22.53 billion and EPS of $1.38. I expect this to be an important earnings report as management continues to lay out its digital growth strategy. Investors should focus on the following key items.

Will Q4 Become The Equivalent Of "Crop Season?"

When I first saw the $22.53 billion estimate, I thought it was a misprint. Apparently, Target's holiday sales were so strong that the company had to increase its Q4 guidance:

Target Corporation [NYSE: TGT] today announced that its comparable sales in the combined November/December period grew 3.4 percent, compared with the expected range of 0 to 2 percent. Comparable sales across all of the Company's core merchandise categories – Home, Apparel, Food & Beverage, Hardlines and Essentials – were positive and accelerated from the third quarter, reflecting strong traffic growth, positive store comps and continued strength in digital sales. Target now expects 2017 will be the fourth consecutive year in which its digital sales grow more than 25 percent.

Expected same-store sales of 3.4 percent in November/December is downright gaudy compared to the 0.8% figure reported last quarter. Management expects the strong shopping season to push total full-year comparable sales above 1 percent. First of all, it could be a dangerous trend for Target to have to rely on holiday sales or "crop season" to drive an uptick in same-store sales. Secondly, while management should be commended for a strong holiday season, the question remains, "What happens below the revenue line?"

As more retail sales occur online, that implies lower operating margins for traditional bricks-and-mortar stores. Target is no different. Last quarter the company's gross margin ticked down slightly to 29.7% from 29.8% in the year earlier period. Its EBIT margin fell to 5.2% from 6.5% on higher SG&A expense and higher depreciation costs. I would

This article was written by

Shock Exchange profile picture
The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (4)

PACKER man profile picture
Duopoly: WMT & TGT ; own both and general retail is covered...
RI$ING CAPITAL profile picture
No current position in TGT but looking forward to starting one if we get some panic selling.
NRL Capital profile picture
Holding common position, bought OTM puts at $72.5 strike. Happy to sell to close the latter if stock price hits $70 tomorrow and hold common to see $80 by end of year.
NRL Capital profile picture
WHOOMP THERE IT IS . . . half way there.
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