Target's (TGT) Q4 Earnings Miss, Sales Beat Estimates

After registering positive earnings surprises in the past three quarters, Target Corporation (NYSE:TGT) missed on earnings in the final quarter of fiscal 2017. The company posted fourth-quarter adjusted earnings of $1.37 per share that missed the Zacks Consensus Estimate by a couple of cents and declined 5.8% from the prior-year period. The quarterly earnings came above the mid-point of the recent provided guidance range of $1.30-$1.40 per share.

We observe that rise in cost of sales and higher SG&A expenses hurt the bottom line. Even higher sales failed to act as a savior. Shares of this Minneapolis-based company are down roughly 4% during pre-market trading hours. This is because of the continued year-over-year decline in the bottom line.

Nevertheless, the company generated total sales of $22,766 million that surpassed the Zacks Consensus Estimate of $22,463 million for the fourth straight quarter, and surged 10% from the year-ago quarter.

Target’s initiatives such as the development of omni-channel capacities, diversification and localization of assortments along with emphasis on flexible format stores are encouraging. Additionally, the company intends to deploy resources to significantly develop online platform as well as store facilities to make shopping more convenient for customers. Moreover, “Target Restock” program is also gaining traction.

Notably, comparable sales for the quarter increased 3.6% against 1.5% decline witnessed in the year-ago period. The number of transactions jumped 3.2%, while the average transaction amount increased 0.4%. Comparable digital channel sales surged 29% and added 1.8 percentage points to comparable sales.

These helped this Zacks Rank #2 (Buy) stock to gain 23% in the past three months compared with the industry’s growth of 6.2%.

Gross profit grew 8.5% to $5,971 million, while gross margin contracted 40 basis points to 26.2%. Operating income plummeted 14.6% to $1,152 million, while operating margin shriveled 140 basis points to 5.1%.

Target’s debit card penetration remained flat at 12.7%, while credit card penetration fell 20 basis points to 11.4%. Total REDcard penetration declined to 24% from 24.3% in the year-ago quarter.

Other Financial Details

During the quarter, Target repurchased shares worth $254 million and paid dividends of $337 million. The company still had about $3.7 billion remaining under its $5 billion share buyback program. The company ended the quarter with cash and cash equivalents of $2,643 million, long-term debt and other borrowings of $11,317 million and shareholders’ investment of $11,709 million.

A Glance at the Outlook

Management now anticipates first quarter and fiscal 2018 comparable sales to be up low-single digit. Target now envisions first quarter earnings in the band of $1.25-$1.45 and fiscal 2018 earnings between $5.15 and $5.45 per share. The current Zacks Consensus Estimate for the first quarter and fiscal 2018 stands at $1.40 and $5.28, respectively.

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