Target (TGT) Stock Up On Q2 Earnings Beat, Upbeat FY19 View

Shares of Target Corporation (NYSE:TGT) are up roughly 15% during the pre-market trading hours following an impressive second-quarter performance and an upbeat outlook for fiscal 2019. Robust traffic, favorable store comps and a surge in comparable digital sales are clearly yielding results for this Minneapolis-based company. Both the top and the bottom line not only beat the respective Zacks Consensus Estimate but also increased year over year.

Notably, shares of this Zacks Rank #2 (Buy) have increased 18% and comfortably outpaced the industry’s growth of 15% in the past six months.

Let’s Delve Deeper

This operator of general merchandise stores reported adjusted earnings of $1.82 per share that surpassed the Zacks Consensus Estimate of $1.61 and improved 23.9% from the prior-year period. This year-over-year growth can be attributable to higher sales and share repurchase activity.

Target now projects third-quarter adjusted earnings between $1.04 and $1.24 per share, the mid-point of which $1.14 is higher than $1.09 reported in the year-ago period. For fiscal 2019, management now anticipates adjusted earnings in the band of $5.90-$6.20, up from the prior range of $5.75-$6.05. The company had reported earnings of $5.39 in fiscal 2018. The Zacks Consensus Estimate for the third quarter and fiscal 2019 currently stands at pegged at $1.17 and $5.92, respectively.

The company generated total revenue of $18,422 million that increased 3.6% from the year-ago period and surpassed the Zacks Consensus Estimate of $18,330 million. We note that sales jumped 3.6% to $18,183 million, while other revenue rose 6.3% to $239 million.

Target is deploying resources to enhance omni-channel capacities, coming up with new brands, remodeling or refurbishing stores, and expanding same-day delivery options. Target has undertaken rationalization of supply chain with same-day delivery of in-store purchases along with technology and process improvements.

Meanwhile, comparable sales for the quarter increased 3.4% compared with 6.5% growth witnessed in the year-ago period. The number of transactions rose 2.4%, while the average transaction amount improved 0.9%. Comparable digital channel sales surged 34% and added 1.8 percentage points to comparable sales. Management now envisions comparable sales to increase about 3.4% both in the third quarter and second half of fiscal 2019.

Gross margin expanded 30 basis points to 30.6% during the quarter on account of cost optimization, pricing, promotions and assortment, and favorable category sales mix. Operating margin expanded 80 basis points to 7.2%.

Target’s debit card penetration shrunk 50 basis points to 12.5%, while credit card penetration fell 20 basis points to 10.7%. Total REDcard penetration declined to 23.2% from 23.9% in the year-ago quarter.

Other Financial Details

During the quarter, Target repurchased shares worth $341 million and paid dividends of $328 million. The company still had about $1 billion remaining under its $5 billion share buyback program. The company ended the quarter with cash and cash equivalents of $1,656 million, long-term debt and other borrowings of $10,365 million and shareholders’ investment of $11,836 million.

Check These 3 Trending Stocks

Burlington Stores (NYSE:BURL) has a long-term earnings growth rate of 17% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PriceSmart (NASDAQ:PSMT) delivered average positive earnings surprise of 31.3% in the trailing four quarters. The stock carries a Zacks Rank #2.

Ross Stores (NASDAQ:ROST) delivered an average positive earnings surprise of 2.8% in the trailing four quarters. The company carries a Zacks Rank #2.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft (NASDAQ:MSFT) in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>