Earnings preview: There’s more to Target Corp. than meets the eye

Target Corp. (TGT) has stayed ahead of its peers in certain aspects of the business so far this year, despite the unimpressive earnings performance in the recent quarters. Investors remain optimistic about the multi-brand retailer primarily due to its fast-growing store traffic, an area where its closest rivals lag behind, and the resultant sales growth.

The Minneapolis, Minnesota-based company is scheduled to report second-quarter earnings Wednesday before the market opens. Wall Street analysts have predicted Target to report earnings of $1.39 per share, up 13% compared to the second quarter of 2017. Sales are seen growing at about 5% to $17.21 billion.

Earnings and sales are expected to increase by 12% and 2% respectively in the whole of 2018. With the holiday shopping season around the corner, investors can look for an updated outlook from the company, which bets on the steady sales growth to return to profit growth by next year.

Investors remain optimistic about the multi-brand retailer primarily due to its fast-growing store traffic

According to experts, the ongoing traffic growth, which hit the fastest pace in 10 years in the last quarter, and comparable store performance will continue in the June quarter also, driving up the top-line. Initial estimates indicate that store traffic got a boost from the favorable weather condition, enhanced shopping experience brought about by the redesigned stores and competitive pricing.

RELATED: Target to pay $4 million in settlement

Meanwhile, the squeeze on margins from high operating expenses will be a dampener – a major challenge the entire retail sector is currently facing. While sticking to the strategy of promoting in-store shopping, Target is also well aware of the need to stay relevant in the highly competitive industry and continues to invest in its e-commerce platform.

In the first quarter, Target registered the strongest traffic growth in more than a decade, which pushed up sales more than 3%.  As a result, earnings climbed 8.7% year-on-year to $1.33 per share.

RELATED: Target expands delivery service

Walmart (WMT), which competes with Target, last week posted a 34% jump in second-quarter earnings, excluding the impact of losses incurred from asset sales in Brazil and equity investment in JD.com (JD). Among the other discount store operators, Costco (COST) reported better-than-expected earnings for its most recent quarter, aided by robust sales growth.

Target’s shares witnessed a massive upswing in the past 12 months, gaining about 52% during the period. The stock opened slightly higher on Monday and maintained the uptrend throughout the session and closed the day at $83.32, slightly up by 0.34%.

RELATED: Target Q1 traffic growth at 10-year high