The past 12 months haven’t been easy for Target Corporation (NYSE:TGT) shareholders. TGT stock is down 12% since its July-2015 peak, and that’s with a 14% bounce up and off June’s low.
The prod for the weakness? Nothing surprising. Earlier last year, Target announced a swath of layoffs that would not only end up costing the company $100 million, but also sent a troubling message.
Then, just when it looked like investors were willing to look past the downside of the layoffs, rumors surfaced that Target may be better served by outright selling its grocery business rather than moving ahead with its expansion plans.
As it turns out, the panic behind the pullback wasn’t merited. Target will have a chance to prove it — or disprove it — when it posts its second-quarter results before the market opens this Wednesday.
Target Earnings Preview
As of the most recent look, Target is expected to report per-share income of $1.12 on $16.17 billion in revenue.
Both would be down from year-ago figures of $1.22 per share of TGT stock and stakes of $17.43 billion. The company offered profit guidance of between $1.00 and $1.20. Just for the record though, Target has historically topped earnings and revenue estimates (though it has stumbled a few times in recent quarters).
Same-store sales are projected roll in 0.9% lower.
The pros have been mixed on TGT stock of late. A week ago, Cleveland Research lowered its same-store sales outlook for the quarter, projecting sales to fall by 1.5% based on its measure of store traffic. Conversely, Deutsche Bank raised its target price in TGT stock from $78 to $79 this week — in front of earnings — though it is still waiting to see how last quarter’s numbers will unfurl.
Meanwhile, The Buckingham Research Group analysts opined this week, “We have been impressed with new management’s decisive actions and evidence of improved merchandising and execution, although the first quarter of fiscal 2016 was a modest setback.” MKM Partners added, “We wouldn’t be surprised by upside EPS at Walmart but think the potential for improving comps is greater with Target, given new merchandise lines in children’s, improvements in grocery and benefits from the CVS partnership.”
TGT: Three Things to Think About
While investors have plenty to think about with Target Corporation, three factors stand ready to push and pull TGT stock more than any others.
Groceries: While last year’s chatter that Target was looking to sell its grocery business ended up being nothing more than a rumor, it has struggled to make food the growth engine it was supposed to be. Just this week, news surfaced that its perishables were expiring too often before being sold. It’s a tacit sign — and the retailer acknowledges this — that it’s not being perceived as a full-blown grocery store yet. Food is a core piece of the company’s future, however.
E-commerce: While Target’s e-commerce platform has always been a slick, well-oiled and well-integrated part of the company, it has never been a big part of the revenue mix … even with the prior quarter’s 23% improvement in digital sales. That could be changing soon, though, if a recent hire is any indication.
Target has poached Amazon.com, Inc. (NASDAQ:AMZN) supply chain executive Preston Mosier, naming him Vice President of Fulfillment Operations. Given how Wal-Mart Stores, Inc. (NYSE:WMT) recently acquired e-commerce outfit Jet.com, Target would be wise to step up its online effort.
New store concept: Despite the fact that Walmart hasn’t done especially well with them, Target is planning to forge ahead with its small-footprint concept, aiming to open 14 more of the 20,000 square-foot sites before the end of 2016.
These smaller stores open up new growth opportunities in markets where a larger store can’t be supported, and are integral to the organization’s growth plans in the shadow of a highly saturated general store market.
Bottom Line for TGT Stock
While the headlines have admittedly looked and sounded dire for Target, they’ve been embellished relative to the headwind the retailer has actually been facing. Either way, the headwind of concerning news seems to be abating, with the bigger growth trend poised to resume. Wednesday morning’s announcement may well convince the market Target is still the real deal.
Rival Walmart will announce its quarterly numbers on Thursday of this week.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
