On Wednesday morning, general merchandise retailer Target Corporation (NYSE:TGT) will report its fiscal third-quarter results. It needs a win … badly.
Although Target stock is up 7% for the past five trading days, shares have yet to reclaim the ground they lost in response to rather pitiful second quarter — on a year-over-year basis revenues fell 8%, for a variety or reasons. Income fell nearly 10%. Same-store sales were down 1.1%.
It’s not the direction the retailer was hoping to be headed into what could be a crucial holiday shopping season.
Is there any chance Target stock could have stopped the bleeding between then and now? There’s always that chance, but there aren’t too many $40 billion companies that can turn on a dime.
Target Stock Earnings Preview
As of the last look, analysts collectively expect Target stock to report income of 83 cents per share on sales of $16.3 billion for its third quarter. Both would be down from year-ago figures of earnings of 86 cents per share of Target stock and a top line of $17.6 billion.
The company itself had offered Q3 profit guidance of between 75 cents and 95 cents per share, but only added that same-store sales would likely be between flat and down 2% for the latter half of the year. Analysts, however, have posted more specific suggestions — they’re looking for a 1.2% decline in same store sales for the third quarter, and a 1.5% dip for Q4’s same-store sales figure.
Target stock has topped analyst estimates more often than not since its fiscal 2014 (calendar 2013) lull, and has broadly grown the per-share bottom line. Bear in mind, however, that aggressive stock buybacks have greatly contributed to that growth. Actual net income has quietly been slumping for years, which doesn’t bode well for Target stock.
3 Keys for Target Stock Holders
While in the end it’s always about the numbers, the figures Target produces are ultimately about the company’s initiatives and decisions. There are three keys to the results the retailer has been producing and will produce in the foreseeable future.
Groceries: Target touted the expansion of it grocery category as the key to sales growth earlier in the year; the company was certain it could become the one-stop solution for consumers. So far though, no dice. A quarter ago the company was reporting that produce and meats were spoiling sitting on the stores’ shelves before they were bought. TGT vowed to keep working it, but with the impending exit of the grocery division’s chief, Anne Dament, that business is about to face a sizable disruption before being put on track.
Bathroom Policies: In April of this year, Target proactively entered the sociopolitical arena, announcing its customers would be permitted to use the restroom they identified with, gender-wise. That decision swiftly prompted a boycott of Target stores, which undoubtedly took a toll on Q2’s numbers, and will almost certainly take a toll on Q3’s. The question is, to what extent, and for how long will the boycott make an impact.
Flex Stores: While the big-box general merchandise store idea may be near (or even at) the point of saturation, Target sees hope in growth via smaller neighborhood-oriented stores. It’s something Wal-Mart Stores, Inc. (NYSE:WMT) tried and then ultimately abandoned due to a lack of traction. Target has proven to be at least a little more nimble than Walmart, though, and arguably has a better shot at making it work in a way that matters to the top and bottom line.
Bottom Line for Target Stock
While Target is set up for an earnings beat on Wednesday morning and Target stock will likely advance in the wake of low expectations, the long-term deck is still stacked against the retailer.
That’s not to say avoid Target stock … it remains one of the better-run retailers, in fact, expanding its e-commerce business and making a measurable dent with its new smaller-store format. But it’s all still a work-in-progress.
Target is trying to regroup from a spiral of problems that ultimately got started back in late 2013 when millions of its customers’ credit card numbers were hacked. Since then, consumers have seen everything the company does through a lens of doubt and discord.
There’s no way to say the company isn’t on the defensive now, and is a “prove it to me first” kind of investment … even if it does manage to initially jump following Wednesday’s report. Brace for fireworks no matter what.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.