Target crushes earnings; raises full-year forecast

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Target crushes earnings; raises full-year forecast

By Marianne Wilson - 11/20/2019
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Target Corp. is charging into the all-important holiday shopping season on the heels of a stellar third quarter that buoyed the industry after disappointing third-quarter results from Kohl’s Corp. and J.C. Penney Co. 

The discount giant raised its profit outlook for the year after reporting earnings that easily topped analysts’ estimates. 

Net income rose to $714 million, or $1.39 a share, for the quarter ended Nov. 2, from $622 million, or $1.17 a share, in the year-ago period. Adjusted earnings per share grew to $1.36 from $1.09, well above analysts’ estimates of $1.19. 

Revenue rose 4.7% to $18.67, beating Street estimates of $18.45 billion. Target’s third-quarter same-store sales rose 4.5%, topping expectations of 3.7%. Comparable digital sales surged 31%, on top of 49% last year. Target said its same-day fulfillment services, which include buy-online-pick-up-in-store, curbside pick-up and same-day delivery with Shipt, accounted for 80% of its digital comparable sales growth. 

Analyst Neil Saunders noted that, unlike many other retailers, Target’s bottom line has not been negatively impacted by its growing share of online sales (7.5% of revenue in the third quarter versus 6.0% last year). Indeed, over the quarter net income increased by almost 15%, underpinned by a 22% uplift in operating profit.

“Much of this is because of the high frequency of orders fulfilled from stores, which is more cost-effective than last-mile shipping,” he said. “However, Target also deserves credit for streamlining operations and for pushing higher-margin own brand product more heavily.” (Click here for commentary.)

Traffic during the quarter increased up 3.1%. The average transaction amount grew 1.4%.

“Our third-quarter results are further proof of the durability of our strategy, as we’re seeing industry-leading strength across multiple metrics, from the top line to the bottom line,” said Target chairman and CEO Brian Cornell. “Looking ahead, we have ushered in the holiday season with an unwavering commitment to guest service that complements our highly differentiated, value-driven assortment, our exceptional in-store shopping experience as well as an unmatched suite of easy and convenient fulfillment options.”

For the fourth quarter, Target expects adjusted earnings per share of $1.64 to $1.74 and same-store sales growth of 3% to 4%, compared with the FactSet consensus for earnings per share of $1.65 and same-store sales growth of 3.3%.

For 2019, Target raised its adjusted earnings per share guidance range to $6.25 to $6.45 from its previous $5.90 to $6.20.

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