Target Corporation (NYSE:TGT) posted first-quarter fiscal 2016 results, wherein adjusted earnings of $1.29 per share surpassed the Zacks Consensus Estimate of $1.20 and management’s guidance of $1.15 to $1.25 per share. Earnings per share of this Zacks Rank #3 (Hold) company surged 16.5% year over year driven by an increase in traffic count and sturdy sales in signature categories.
Including one-time items, earnings from continuing operations came in at $1.02 per share compared with $1.01 reported in the year-ago period.
Target winded up its Canadian operations after a comprehensive evaluation. This is enabling the company to deploy resources solely in the domestic markets and focus on developing its omnichannel capacities. The company also intends to invest in merchandise categories such as Style, Baby, Kids and Wellness.
Despite a better-than-expected bottom line, the stock plunged 7.8% during pre-market trading hours as the top line continues to struggle and as management provided a subdued forecast for the fiscal second quarter.
Let’s Unveil the Picture
Total sales declined 5.4% to $16,196 million from the prior-year quarter, and also came below the Zacks Consensus Estimate of $16,309 million. The sale of the pharmacy and clinic businesses to CVS Health (NYSE:CVS) impacted the top line.
Minneapolis-based Target’s comparable sales for the quarter increased 1.2%. The number of transactions jumped 0.3%, while the average transaction amount climbed 0.9%. Comparable digital channel sales surged 23% and added 0.6 percentage points to comparable sales growth.
Gross profit decreased 3.8% to $5,011 million, however, gross margin expanded 50 basis points to 30.9%. Operating income advanced 4.9% to $1,323 million, while operating margin increased 80 basis points to 8.2%.
Target’s credit card penetration expanded 100 basis points to 10.4%, whereas debit card penetration also increased by 100 basis points to 13% during the quarter. Total REDcard penetration climbed to 23.4% from 21.5% in the year-ago quarter.
Other Financial Details
During the reported quarter, Target repurchased 11.4 million shares at a price of $78.37 per share, aggregating $893 million and paid dividends of $336 million. Under the current $10 billion share buyback program, the company has repurchased 106 million shares at a price of $70.51 per share, totaling approximately $7.5 billion.
The company ended the quarter with cash and cash equivalents (including short-term investments) of $4,036 million, long-term debt and other borrowings of $12,596 million and shareholders’ investment of $12,545 million.
Stores Update
Target, which shares space with Dollar General Corporation (NYSE:DG) , Sears Holdings Corp. (NASDAQ:SHLD) and Wal-Mart Stores Inc. (NYSE:WMT) , operated 1,793 stores as of Apr 30, 2016.
Outlook
Management now projects adjusted earnings in the band of $1.00 to $1.20 per share for the fiscal second quarter and reaffirmed the fiscal 2016 earnings outlook of $5.20 to $5.40. The current Zacks Consensus Estimate for the ongoing quarter and fiscal 2016 are pegged at $1.38 and $5.27, respectively.
Target expects comparable sales to be flat to down 2% during the fiscal second quarter.
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