Earnings Preview: Target likely to continue the momentum in q2

Target Corporation (NYSE: TGT) stock jumped 15% since May after the retailer’s first quarter results came ahead of estimates. The Q2 guidance also surpassed consensus resulting in an 11% increase in the stock price post the Q1 earnings announcement and has risen 25% this year.

The Trump administration would impose 10% tariff on $300 billion worth of Chinese imports effective September 1. However, the US President’s trade representative has announced that there could be a delay in tariffs until December on items like clothing, toys, mobile phones, computers, laptop, and few others.

US government could have taken this decision keeping in mind the upcoming holiday season. Anyways, this news is going to be a tailwind for Target and its peers. However, investors would be interested in knowing from the management how much of an impact this could have on the top line. Target is slated to report its second quarter results on Wednesday before the bell.

Headline Numbers

Target is anticipating Q2 adjusted EPS of $1.52-1.72 backed by low-to-mid-single digit sales growth. Analysts are expecting bottom line to come in at $1.62, which is the mid-point of the guidance provided by the retailer. Revenue is projected to grow 3% to $18.34 billion.

For the fiscal 2019 period, non-GAAP earnings is guided at $5.75-6.05 compared to $5.93 per share projected by the street. Top line is anticipated at $78.2 billion. It would be interesting to see whether Target is lifting its full-year outlook.

Key Metrics

Comp-store sales are one of the key metrics tracked by the street. Last quarter, comparable sales grew 4.8% due to increased customer traffic, up about 2% from prior year period. However, for the Q2 2018 period, Target recorded same-store sales growth of 6.5%. Given the tough comps, investors would be watching this metric closely to see whether the retailer is able to report better growth numbers.

Digital sales continue to gain momentum for Target. Last quarter, comp digital sales rose 42% compared to 28% reported in the Q1 2018 period. The company is seeing good traction from its same-day fulfilment service, which is expected to grow consistently in the latter half of 2019.

In the Q2 2018 period, digital sales rose 41%. If the momentum in the digital channel continues into the second quarter, then we can expect e-commerce sales to see good growth over last year.

Bottom Line

Target has been focusing on improving its supply chain which would result in reduced fulfilment costs in the long-term. The company has also been focusing on store remodels and coming up with small format stores in line with the changing consumer trends and shopping habits of consumers.

In addition, the retailer has been focusing on beefing up its private brand sales and partnerships with other brands which are expected to bring in better margins. It has also invested on improving its digital initiatives which is going to be additive to the top line in the years to come.

Apart from Target, on August 21, Lowe’s Companies (LOW) is reporting its Q2 results before the bell, while Nordstrom (JWN) and L Brands (LB) are reporting its second quarter earnings after the bell.

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