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Target (TGT) Q2 Earnings is Likely to Improve Y/Y: Here's Why

Zacks Equity Research

Target Corporation TGT is scheduled to release second-quarter fiscal 2019 results on Aug 21. Efforts to enhance omni-channel capacities, coming up with new brands, remodeling stores and expansion of same-day delivery options will play a crucial role in determining the upcoming quarterly results.

How Are Estimates Shaping Up?

After registering bottom-line improvement of 15.9% in the first quarter of fiscal 2019, Target is likely to deliver year-over-year growth in the second quarter as well. The Zacks Consensus Estimate for the quarter under review is pegged at $1.61, indicating an improvement of roughly 9.5% from the year-ago quarter. We note that the Zacks Consensus Estimate has remained unchanged in the last 30 days.

The Zacks Consensus Estimate for revenues is pegged at $18,330 million, suggesting growth of about 3.1% from the prior-year period.

Factors to Know

Target has chalked out strategies to adapt to the fast-changing retail landscape. The company has undertaken rationalization of supply chain with same-day delivery of in-store purchases, and technology and process improvements. Further, the company’s digitization initiative is paying off quite well. We note that comparable digital channel sales had surged 42% during the first quarter of fiscal 2019 and added 2.1 percentage points to comparable sales.

Same-Day Delivery to Lift Sales

Retailers are ensuring speedy delivery to customers. In fact, retailers are either acquiring or partnering with delivery service companies for same-day delivery to stay ahead of the curve. With the aim of capitalizing on the booming online grocery delivery market, Target teamed up with popular online grocery delivery service, Instacart. The company also made significant headway in the same-day delivery race by acquiring Internet-based grocery delivery service, Shipt, to provide same-day delivery of groceries, essentials, home, electronics and other products.

Restock Program & Other Initiatives

The company has rolled out Target Restock program that enables customers to restock their shipping box with essential items online and get them delivered at door steps by the next business day for a nominal charge. Drive Up, an app-based service, is another initiative to expedite the shopping process. The service enables customers to place orders using the Target app and have it delivered to their cars. All these efforts are likely to impact the upcoming quarterly results favorably.

Management had earlier guided comparable sales growth in low-to-mid-single digit range during the second quarter of fiscal 2019. For the quarter, adjusted earnings are envisioned to be between $1.52 and $1.72 per share compared with $1.47 reported in the year-ago quarter.

Target Corporation Price, Consensus and EPS Surprise


Target Corporation Price, Consensus and EPS Surprise
Target Corporation Price, Consensus and EPS Surprise

Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote

Will Margins Remain Under Pressure?

We note that the gross margin shriveled 20 bps, 10 bps, 90 bps and 40 bps during the first, second, third and fourth quarters of fiscal 2018, respectively. During the first quarter of fiscal 2019, gross margin contracted 20 basis points to 29.6% due to increased digital fulfillment and supply chain costs.

What’s the Probability of Earnings Beat?

Our proven model shows that Target is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP— for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Target has a Zacks Rank #2 and an Earnings ESP of +1.04%. This makes us reasonably confident of an earnings beat. The company’s bottom-line has outperformed the Zacks Consensus Estimate by average of 2.6% in the trailing four quarters. This operator of general merchandise stores has a positive earnings surprise of 7% in the last reported quarter.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post earnings beat.

Burlington Stores BURL has an Earnings ESP of +0.70% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores ROST has an Earnings ESP of +0.82% and a Zacks Rank #3.

Costco COST has an Earnings ESP of +0.30% and a Zacks Rank #3.

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