Earnings down, expectations up

With all the back-and-forth over which slate of directors is best qualified to represent the interests of Target shareholders, the company’s first-quarter results last week got lost in the shuffle. The oversight could be considered surprising when looking at earnings per share of 69 cents that substantially exceeded analysts’ estimates of 59 cents, which had been increased from 52 cents a week earlier when Target released April sales and said it would beat the then consensus. However, the problem with beating analysts’ estimates in this case is that the company simply performed less badly than expected, and the outperformance was due more to expense control than sales growth. Profits declined 13% to $522 on revenues that were essentially flat and same-store sales fell 3.7%.

“We are seeing encouraging signs of stability in the operating results of both our retail and credit segments. Satisfaction among our guests continues to be among the highest in the industry with guest survey scores continuing to trend upward,” said Target chairman, president and CEO Gregg Steinhafel. “Broadly speaking, economic conditions appear to be stabilizing somewhat and we believe this will prompt greater discretionary spending in the months ahead.”

If that proves to be the case, Target could find itself in a position where the metrics analysts use to assess business performance are trending upward and exceeding their estimates becomes more meaningful.