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Why Is Target (TGT) Down 0.1% Since Last Earnings Report?
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It has been about a month since the last earnings report for Target (TGT - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Target due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Target’s Q3 Earnings Top Estimates, Digital Sales Soar
Target Corporation continued with its stellar performance in third-quarter fiscal 2020, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. While the quarter marked the seventh straight earnings beat, revenues surpassed the estimate for the third time in row. Notably, comparable sales increased for the 14th consecutive quarter. The metric gained from strength in the digital channel, given customers’ increased shift to online shopping amid coronavirus-led social distancing.
The company has been focusing on store refurbishments, enhancing digital capabilities and expanding same-day fulfillment options, keeping in mind speed and convenience. Cumulatively, these contributed to the upbeat performance.
This operator of general merchandise stores reported adjusted earnings of $2.79 per share that surpassed the Zacks Consensus Estimate of $1.61, and rose sharply from $1.36 per share reported in the year-ago period.
The company generated total revenues of $22,632 million that increased 21.3% from the year-ago period and outpaced the Zacks Consensus Estimate of $20,908 million. We note that sales jumped 21.3% to $22,336 million, while other revenues were up 18.1% to $296 million.
Let’s Delve Deeper
Markedly, Target witnessed sturdy market-share gains in all five core merchandise categories owing to strong demand. While Electronics soared more than 50%, comparable sales in Apparel category rose nearly 10% in the quarter. Home registered comparable-sales growth in the mid-20% range. Essentials & Beauty and Food & Beverage witnessed broad-based growth in the high teens.
We note that stores fulfilled more than 95% of the company’s sales in the quarter. About 75% of third quarter digital sales were fulfilled by stores. Same-day services (Order Pick Up, Drive Up and Shipt) surged 217%. Sales fulfilled by Shipt were up nearly 280% year over year and sales through Drive-Up were up more than 500% during the quarter under review. Order Pickup rose more than 50% in the quarter.
Meanwhile, comparable sales for the quarter increased 20.7%, backed by 15.6% jump in average ticket as consumers consolidated trips amid the pandemic. Comparable traffic grew 4.5%. Digital comparable sales soared 155% and added 10.9 percentage points to comparable sales. Comparable stores sales grew 9.9% during the quarter. Third-quarter digital sales grew more than $2 billion.
Gross margin expanded 80 basis points to 30.6% during the quarter, gaining from merchandising actions, mainly from exceptionally low markdown rates. This was partly offset by increased digital fulfillment and supply chain costs as well as unfavorable category mix. Again, operating margin grew 310 basis points to 8.5%.
Target’s debit card penetration shrunk 30 basis points to 12.2%, while credit card penetration fell 140 basis points to 9.3%. Total REDcard penetration declined to 21.5% from the year-ago quarter’s 23.1%.
Other Financial Details
During the reported quarter, Target paid dividends of $340 million. The company also informed that it intends to resume share repurchase activity next year. The company had $4.5 billion remaining under its $5-billion share-buyback program approved in September 2019.
The company ended the quarter with cash and cash equivalents of $5,996 million, long-term debt and other borrowings of $12,490 million and shareholders’ investment of $13,319 million.
Target incurred capital expenditures of about $600 million during the quarter under review. Management continues to anticipate capital expenditures between $2.5 billion and $3 billion in fiscal 2020, in contrast to prior expectation of about $3.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 15.52% due to these changes.
VGM Scores
At this time, Target has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Target has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Target (TGT) Down 0.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Target (TGT - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Target due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Target’s Q3 Earnings Top Estimates, Digital Sales Soar
Target Corporation continued with its stellar performance in third-quarter fiscal 2020, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. While the quarter marked the seventh straight earnings beat, revenues surpassed the estimate for the third time in row. Notably, comparable sales increased for the 14th consecutive quarter. The metric gained from strength in the digital channel, given customers’ increased shift to online shopping amid coronavirus-led social distancing.
The company has been focusing on store refurbishments, enhancing digital capabilities and expanding same-day fulfillment options, keeping in mind speed and convenience. Cumulatively, these contributed to the upbeat performance.
This operator of general merchandise stores reported adjusted earnings of $2.79 per share that surpassed the Zacks Consensus Estimate of $1.61, and rose sharply from $1.36 per share reported in the year-ago period.
The company generated total revenues of $22,632 million that increased 21.3% from the year-ago period and outpaced the Zacks Consensus Estimate of $20,908 million. We note that sales jumped 21.3% to $22,336 million, while other revenues were up 18.1% to $296 million.
Let’s Delve Deeper
Markedly, Target witnessed sturdy market-share gains in all five core merchandise categories owing to strong demand. While Electronics soared more than 50%, comparable sales in Apparel category rose nearly 10% in the quarter. Home registered comparable-sales growth in the mid-20% range. Essentials & Beauty and Food & Beverage witnessed broad-based growth in the high teens.
We note that stores fulfilled more than 95% of the company’s sales in the quarter. About 75% of third quarter digital sales were fulfilled by stores. Same-day services (Order Pick Up, Drive Up and Shipt) surged 217%. Sales fulfilled by Shipt were up nearly 280% year over year and sales through Drive-Up were up more than 500% during the quarter under review. Order Pickup rose more than 50% in the quarter.
Meanwhile, comparable sales for the quarter increased 20.7%, backed by 15.6% jump in average ticket as consumers consolidated trips amid the pandemic. Comparable traffic grew 4.5%. Digital comparable sales soared 155% and added 10.9 percentage points to comparable sales. Comparable stores sales grew 9.9% during the quarter. Third-quarter digital sales grew more than $2 billion.
Gross margin expanded 80 basis points to 30.6% during the quarter, gaining from merchandising actions, mainly from exceptionally low markdown rates. This was partly offset by increased digital fulfillment and supply chain costs as well as unfavorable category mix. Again, operating margin grew 310 basis points to 8.5%.
Target’s debit card penetration shrunk 30 basis points to 12.2%, while credit card penetration fell 140 basis points to 9.3%. Total REDcard penetration declined to 21.5% from the year-ago quarter’s 23.1%.
Other Financial Details
During the reported quarter, Target paid dividends of $340 million. The company also informed that it intends to resume share repurchase activity next year. The company had $4.5 billion remaining under its $5-billion share-buyback program approved in September 2019.
The company ended the quarter with cash and cash equivalents of $5,996 million, long-term debt and other borrowings of $12,490 million and shareholders’ investment of $13,319 million.
Target incurred capital expenditures of about $600 million during the quarter under review. Management continues to anticipate capital expenditures between $2.5 billion and $3 billion in fiscal 2020, in contrast to prior expectation of about $3.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 15.52% due to these changes.
VGM Scores
At this time, Target has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Target has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.