How Target Corporation (TGT) Stock Earnings Can Win Over Investors

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Target Corporation (NYSE:TGT) announces second-quarter earnings Wednesday before the markets open. If its latest guidance update in July is any indication, TGT stock is going to jump on the news.

How Target Corporation (TGT) Stock Can Win Its Earnings Report

Target is expected to deliver positive same-store sales in the second quarter, a beacon of hope for a retailer that’s had four consecutive quarters of declining same-store sales heading into tomorrow’s earnings.

Cue the comeback? We’ll know more after its earnings and conference call. That said, I believe Target has to forget about Amazon.com, Inc. (NASDAQ:AMZN) and start playing to its strengths.

Earnings Expectations

As I mentioned previously, Target expects to have a modest uptick in second-quarter same-store sales due to increased foot traffic in May and June. Its adjusted earnings per share will be at least 97 cents, or as high as $1.18 per share.

Last year’s adjusted EPS was $1.23, so if it can at least get to $1.07, the midpoint of its Q2 EPS guidance, investors in TGT stock should be relatively happy considering the brutal retail environment.

A Big Remodel

You don’t have to be a rocket scientist to know CEO Brian Cornell is having a mighty tough time righting the Target ship. Frankly, I’m not sure any hire would have been able to successfully maneuver the company through the changes it’s had to go through over the past three years including the closure of its Canadian operations.

On the job since July 2014, Cornell’s doubling down on brick-and-mortar retail, spending $500 million in fiscal 2017 alone upgrading more than 100 stores and opening additional small-format stores. In conjunction with that, it is lowering prices across the store resulting in a $400 million reduction in gross margins.

In total, Target plans to invest $7 billion in its business over the next three years, principally to make it a stronger, faster, better retailer; one that can capture market share from competitors.

Investors didn’t like the Feb. 28 announcement, sending TGT stock down 12.7%. Since then TGT stock has drifted sideways. Considering how the positive news from Target in July did little to move its stock higher, I’d be inclined to wait until after earnings if you’re thinking of buying shares in the company.

Three Things to Watch

I’m sure Cornell will spend lots of time talking about its three-year plan to remake itself. Here’s what I’m hoping to hear from the CEO.

1. I believe that successful retailers lead rather than follow. Target needs to stop trying to be Amazon and just be Target. That means continuing to introduce brands like Cloud Island.

“The launch of Cloud Island in May was a success, and our team will be rolling out four more exclusive brands across Home and Apparel in the next few months, in support of our plan to launch 12 new brands by the end of 2018,” Cornell said in Target’s Q2 2017 guidance update.

I want to hear about the progress made on this front.

2. Target just announced it was acquiring San Francisco-based Grand Junction, a tech firm that helps retailers provide same-day delivery. Target’s already been testing this in a Manhattan store.

Between same-day delivery using Grand Junction’s technology, Target Restock, its next-day delivery service in the Minneapolis area, and its curbside pickup currently being tested, the company is working hard to meet its customer’s needs.

How are all three of these services going to be integrated into the customer experience so that its omnichannel retail is truly seamless?

3. Target generates about 20% of its revenue from its grocery business. In March it hired long-time Kroger Co (NYSE:KR) executive Jeff Burt to lead the grocery business.

With recent hires from both Wal-Mart Stores Inc (NYSE:WMT) and General Mills, Inc. (NYSE:GIS), Target is investing in a future that includes the grocery business. I want to hear what kind of spin it’s putting on grocery that speaks to the loyal Target customer.

Bottom Line on TGT Stock

Jeff Bezos is committed to Amazon selling everything it possibly can to its millions of Amazon Prime customers. In this regard, I believe Target needs to do the same thing.

Build the business so that Target loyalists will spend more per visit, whether in the stores or online, a philosophy that’s worked magic for Ulta Beauty Inc (NASDAQ:ULTA).

I think Brian Cornell is doing that. Hopefully, we’ll know more tomorrow.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/how-target-corporation-tgt-stock-can-win-its-earnings-report/.

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