Fly Intel: What to watch in Target's earnings report


Target (TGT) is scheduled to report results of its third fiscal quarter before the market open on Wednesday, November 20, with a conference call scheduled for 8:00 am EDT. What to watch for:



1.COMPETITION WITH ONLINE RETAILERS

Retailers like Target have been hurt by the trend toward online shopping on sites like Amazon (AMZN) rather than at brick-and-mortar stores. Walmart (WMT) announced this spring that it is stepping up its battle with Amazon and Target by offering one-day delivery without a shipping fee, weeks after Amazon announced a similar offer.

Earlier this month, Target introduced HoliDeals, featuring deals throughout the season on items like decor, electronics, toys and more. KeyBanc analyst Edward Yruma said he believes Target is uniquely positioned to capture share from store closures in the mid-tier department. Raymond James analyst Matthew McClintock said Target is "well positioned to take market share" from weaker retailers, and sees annual EPS growth of high-single-digit to 10% for the retailer going forward.

2. GUIDANCE

In August, Target forecast Q3 adjusted EPS of $1.04-$1.24, against analysts' current consensus of $1.19, with comp sales growth of 3.4%. For fiscal 2019, Target raised its adjusted EPS view to $5.90-$6.20 from $5.75-$6.05 on comp sales up 3.4% in the second half of the year. At the time, the consensus estimate for FY19 EPS was $5.93, but it has since moved higher to $6.18.

The company said it expected comp sales increases in both Q3 and Q4 and that it felt tariff impacts were more of a "2020 issue." Cleveland Research analyst Scott Bender said his work indicates that sales momentum appeared to slow a bit more than he was expecting at Target in the second half of Q3 following a strong start.

3. RECENT INITIATIVES

Target is expanding its plans to remodel supercenters and open smaller stores in cities. Earlier this year, Target introduced Everspring, a new household essentials brand comprised of more than 70 household essentials items that include ingredients and components that are derived from plants or use other renewable materials. It also announced the introduction of Good & Gather, its largest owned food and beverage brand.

Target said the flagship brand will offer a wide range of food and beverage products "that prioritize taste, quality ingredients and ease, at a great value." Buckingham analyst Bob Summers said he remains "impressed" with management's ability to consistently innovate, create strategic partnerships, broaden online and delivery capabilities, offer proprietary products and remain price competitive.

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