Target Corp. (TGT) bets on strong fundamentals to stay resilient

Target Corporation (NYSE: TGT) lost significant market value this week after the department store chain reported weak holiday sales and lowered its outlook, spurring a stock selloff. While there are concerns about its future, the stock is likely to recover from the temporary slump and get back on track before the next earnings report, which is expected next month.

Related: Target Q3 2019 Earnings Conference Call Transcript

After staying on an upward trajectory for several months, the stock had hit a record high in the final weeks of last year. However, it entered 2020 on a negative note and lost 8% since then. Analysts’ consensus price target of $138 represents a 19% upside, which also justifies the buy rating. The stock traded lower during Thursday’s regular session.

The holiday debacle was quite unexpected as the market has been quite bullish about the company’s prospects this year. The fact that high-margin categories such as consumer essentials and apparels did well this season gives hope that things would change for the better in the coming weeks. Meanwhile, the gross margin was in line with the normal trend. It needs to be noted that most retailers recorded below-average sales this season.

Week Outlook

During the early part of the holiday season, comprising the months of November and December, Target’s comparable sales increase by 1.4%. The outcome did not go well with the market, which was expecting a better performance. The slowdown is attributable to weakness in the main holiday categories, which more than offset the higher sales in the other areas.

Also see: Why Kohl’s Corp. needs to focus on ailing segments?

During the period, there was a 19% growth in comparable digital sales. For the whole of the fourth quarter, ending January 2020, the management forecasts comparable-store sales growth of 1.4%, which is far below the earlier forecast. The outlook for full-year comparable sales is 3%.

Positive Q3 Comps

In the third quarter, earnings increased 25% annually to $1.36 per share even as revenues moved up 5% to $18.7 billion. The results benefited from positive same-store sales amid strong store traffic and topped Wall Street’s prediction.

Resilience

Target has stayed unaffected by the sweeping change the sector is witnessing – mainly the shift to technology-enabled business model that resulted in the dominance of e-commerce firms like Amazon (AMZN) in the retail space.

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