What To Expect From Target’s Q1

Target (NYSE: TGT) is scheduled to announce its fiscal first quarter results on Wednesday, May 23. The retailer saw a better-than-expected performance in 2017, as both its revenue and earnings per share (EPS) came in ahead of market expectations. Target has been looking to overhaul its business model with the expansion of small-format stores, in addition to revamping its existing stores and improving supply chain management, since the beginning of 2017. In fact, the company has planned to invest around $7 billion over 2017-2019 for the same purpose. However, it is going to take a lot of effort on its part to keep up with Amazon (not to mention Wal-Mart, which has spent billions on e-commerce initiatives and acquisitions). Target saw its stock decline nearly 10% in 2017 but is now up about 14% year-to-date.

We have created an Interactive Dashboard which outlines our forecasts for the company’s Q1 and full-year 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Looking Forward To 2018

We expect Target’s revenues to grow on the back of ongoing digital initiatives, the Shipt acquisition, and Drive Up service in the first quarter. However, the company’s bottom line could decline due to continued cost pressure from the rapid rollout of the company’s new fulfillment options, ongoing wage investments in the face of a tight labor market across the country and the impact of last year’s price and value investments. Target expects its EPS (both GAAP from continuing operations and adjusted) to be in the range of $1.25 to $1.45. The retailer also expects a low-single-digit increase in comparable sales in this quarter. 

In 2018, Target plans to leverage its network of stores, and Shipt’s technology platform and community of shoppers to quickly add same-day delivery to its capabilities. In addition, the company is looking to open 30 small-format stores and remodel close to 325 stores this year. Target also expects its 2018 GAAP EPS from continuing operations and Adjusted EPS to range between $5.15 to $5.45.

Transition Efforts Appear To Be Working

Target’s revenue growth of 10% in Q4, along with positive comparable sales and double-digit earnings growth, all suggest that the company’s turnaround efforts are likely working for it. Target’s struggle to grow its comparable store sales had been a primary investor concern in recent years, which was largely driven by declining traffic and lower average transaction amounts at its brick and mortar stores. However, Target’s comparable sales grew 1.3% y-o-y in fiscal 2017, driven by a 1.2% growth in digital channels and a 0.1% growth in store comparable sales. This shows that the company’s strategy of investing in its stores to grow traffic is working out, at least to a degree, and that the company’s digital initiatives are resonating well with customers.

Our $69 price estimate for Target’s stock is slightly below the current market price.