Earnings preview: Target to ride high in Q1 on strength of comp sales

Target Corp. (NYSE: TGT) has remained resilient to the challenges in the fast-changing retail space as it maintained positive comparable store performance, mainly through innovation. The grocery store operator is expected to report earnings of $1.43 per share when it publishes results for the first quarter on Wednesday before the opening bell, which represents an 8% year-over-year increase.

Revenues are expected to increase by 4.3% annually to $17.5 billion. The forecast for comparable store sales growth is 2.2%.

While enhancing its digital retail prowess, in the wake of mounting competition, the Minneapolis-based retailer has constantly tried out-of-the-box ideas to improve the top line, such as curbside pickup. The company recently extended the service to 1,250 locations and plans to make all stores compliant with the drive-up pickup facility by year-end.

In the past few years, the management launched several initiatives to enhance customer experience, like free two-day shipping for select items and extensive store redesigning to make them more appealing to new-generation customers. However, in order to compete effectively with industry leaders like Walmart (WMT) and Amazon (AMZN), Target has to expedite its e-commerce push and adaptation of technology.

Revenues are expected to increase by 4.3% annually to $17.5 billion, while the forecast for comparable store sales growth is 2.2%

When its transition to a full-fledged omnichannel retailer completes, the company could switch to the high-growth mode. The positive growth prospects and the relatively low stock price make it an attractive investment option. Considering the company’s inconsistency in beating earnings targets in the past, investing in the stock before the first-quarter report would be a tad risky.

In the fourth quarter of 2018, adjusted earnings climbed to $1.53 per share despite a flat revenue performance, which came in at $23 billion. The improvement in the bottom line reflects a 5.3% comparable sales growth, marked by a 31% jump in digital sales. The comparable sales performance was the best in more than a decade.

Among others, Best Buy (BBY) is scheduled to report first-quarter results on May 23 before the opening bell, while Costco Wholesale (COST) will be unveiling the numbers for its most recent quarter on May 30 after the closing bell.

Target’s shares slipped to a one-year low in the final weeks of last year but recouped a part of the loss at the beginning of 2019. However, the stock pulled back since then and is currently trading just above the $70-mark, outperforming the industry and the S&P 500 index.

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