Earnings Preview: Target Corporation - Analyst Blog

Target Corporation (TGT), the operator of general merchandise and food discount stores in the United States, is scheduled to report its second quarter 2010 financial results on Wednesday, August 18, 2010. The current Zacks Consensus Estimate for the quarter is 92 cents per share.

First Quarter 2010, a Synopsis

Target posted stronger-than-expected first quarter 2010 results thanks to a better sales environment, effective inventory management and cost containment efforts.

The quarterly earnings of 90 cents per share outpaced the Zacks Consensus Estimate of 87 cents, and soared 29.8% from 69 cents in the prior-year quarter.

Total revenue for the quarter increased 5.1% year over year to $15,593 million. Retail sales grew 5.5% to $15,158 million as shoppers are gradually opening up their wallets. Apparel remains one of the strongest categories.

Comparable-store sales for the quarter grew 2.8%, a substantial improvement over a decline of 3.7% registered in the prior-year quarter.

Second Quarter 2010 Consensus

Analysts surveyed by Zacks, expect Target to post second quarter 2010 earnings of 92 cents per share. The current Zacks Consensus Estimate represents year-over-year growth of 16.5%.

The Zacks Consensus Estimate has remained stagnant over the last 30 days; despite 4 out of 22 analysts revised their estimates upward with only one analyst lowering. In the last 7 days, only one analyst has increased the forecast with none of them lowering their estimates, leaving the consensus unchanged.

The Zacks Consensus Estimates for the quarter range from a low of 89 cents to a high of 97 cents.

Earnings Surprise History

With respect to earnings surprises, Target has topped the Zacks Consensus Estimate over the last four quarters in the range from 3.5% to 19.7%. The average surprise is at 12.1%.

Target is Neutral

Target’s efficient marketing, multi-channel strategy, product innovation, compelling pricing strategy and new merchandise assortments should help drive comparable-store sales and operating margins in the long term. We expect the company to gain market share, and believe that more focus on consumable items will likely boost sales and earnings in the sluggish consumer environment.

Target now tends to focus more on store renovations and enhancing store sales productivity, introducing smaller format stores and eyeing opportunities to open stores in the international markets beyond a period of 3 to 5 years. We believe the openings of stores outside the United States will definitely boost the company’s top and bottom lines and improve cash flow generation.

The greater concentration of the company’s revenue generating capabilities in limited regions of the United States poses a competitive threat to Target, compared to Wal-Mart Stores Inc. (WMT) and Costco Wholesale Corporation (COST), who are geographically diversified and are more resourceful. Moreover, Target’s success rides on the stability of these particular regions.

Consequently, we prefer to be Neutral on Target in the long term. Moreover, the Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, correlates with our long-term recommendation.

 
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