Brocker.Org: Target stock jumps as retailer blows past Wall Street expectations


Target‘s revenue and comparable sales are falling 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.

Target shares spiked in premarket trading Wednesday after the discount retailer’s first-quarter earnings report. But the stock fell from those highs shortly after, last trading up around 3 percent.

Target reported its 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 Thomson Reuters analysts’ estimate of 91 cents per share. Meanwhile, revenue fell 1.1 percent, to $16.02 billion, which was higher than the $15.62 billion in sales that analysts were expecting.

Chief Executive Cornell said the company showed “strong execution” in a “very choppy environment” to start 2017.

“After starting the quarter with very soft trends, we saw improvement later in the quarter, particularly in March,” he wrote 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. Sales in its food and beverage business were also down.

“The foremost issue is the quality of Target’s stores,” Neil Saunders, managing director of GlobalData Retail, wrote in a research note Wednesday morning.

“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 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.