General merchandise discount store chain Target earned $1.47 per share in fiscal Q2 2019 (vs. $1.40 est.). Target had total revenue of $17.6 billion, versus the $17.2 billion estimate. Shares climbed 3.2% following the announcement, reaching all-time highs as shareholders were enthused that the company’s reformatting plan is working well.
CEO Brian Cornell remarked, “Comparable sales grew 6.5% in the quarter, representing Target’s strongest quarterly comp performance since 2005. This increase was driven by transit growth of more than 6%, an unprecedented number and by far the strongest performance since we began recording this metric in 2008. Total sales were up 7% from a year ago, reflecting 0.5 point of growth from our new and non-mature stores. Store comparable sales increased nearly 5% and digital sales grew more than 40% in the second quarter, as guests continued to respond to a growing menu of convenience of women options, newness throughout our merchandising categories, freshly remodeled stores and a higher level of service across the chain.”
Mr. Cornell continued, “There is no doubt that, like others, we’re currently benefiting from a very strong consumer environment, perhaps the strongest I’ve seen in my career. But market share data demonstrates that our current results are benefiting from more than just the environment, as we’re seeing broad market share gains across categories we sell.”
Mr. Cornell also offered some insight regarding the effect of tariffs, “Like many of you, we’ve been carefully monitoring recent tariff announcements and we’re aware of the potential for the situation to further escalate. As we’ve said many times, as a guest-focused retailer, we’re concerned about tariffs because they would increase prices on everyday products for American families. In addition, a prolonged deterioration in global trade relationships could damage economic growth and vitality in the United States. Given these risks, we’ve been expressing our concerns to our leaders in Washington, both on our own and along with other retailers and trade association partners. However, our concern is centered on the impact of tariffs on consumers and the economy, not our ability to manage our business in the face of these challenges. As you know, when we’re faced with tariffs or any other external factors, there are multiple levers we can pull to remain price competitive and maintain profitability, and we are continually developing and implementing contingency plans as we learn more and things evolve.”
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For fiscal 2019, TGT expects to earn $5.30 to $5.50 per share, versus the prior estimate of $5.15 to $5.45. And for the upcoming quarter, Target expects to earn $1.00 to $1.20 per share. The retailer returned $750 million to shareholders in the quarter via share repurchases and dividends; and expects to make $3.5 billion of capital expenditures for the full year. While we expect there to be no shortage of competitive and geopolitical headwinds in the future, we think that Target’s strong balance sheet, small stores and large investments in its multi-channel sales network should help solidify its foundation for the future. TGT shares trade for 16 times forward earnings and offer a just-increased quarterly dividend of $0.64 per share, resulting in a yield of 2.9%. Our Target price has been raised to $94.
Date: August 30, 2018
Source: Forbes