Target Hits Q3 Forecasts, Ups Guidance

Led by traffic, digital sales and comp improvements, Target Corp.’s profit soared 56 percent while revenues gained 2.1 percent in the third quarter.

“We’re pleased with our third quarter financial results, as both sales and adjusted earnings per share were near the upper end of our expectations,” said Brian Cornell, chairman and CEO of Target, in a release. “The third quarter marked the fourth consecutive quarter in which we have grown traffic, and Target’s sales growth continues to be led by our signature categories: Style, Baby, Kids and Wellness.”

On the strength of its solid Q3 finish, Target raised its full-year guidance. The company expects full-year adjusted earnings per share (EPS) of $4.65 to $4.75, compared with prior guidance of $4.60 to $4.75.

“Our momentum is encouraging, especially in the face of stiffer prior-year comparisons. Our results highlight the benefit of a consistent, company-wide focus on our key strategic priorities, and that focus will continue to position Target well in the months and years ahead,” Cornell said. “As we look forward to the fourth quarter, our team is focused on strong execution throughout the holidays, and we are confident in our merchandising and marketing plans as we enter the most critical season of the year.”

Despite a fairly robust quarter, the firm’s stock has been in the red since the earnings release Wednesday morning; its share price had declined 6 percent by press time.

Target’s major competitor, Wal-Mart Stores Inc. also saw a better-than-expected finish to the third quarter, reported Tuesday.

Net Income: Net income rose 56 percent year-over-year to $549 million, from the comparable quarter’s income of $352 million.

EPS: Earnings per diluted share were 87 cents, a 59 percent improvement from diluted EPS of 55 cents last year.

Net Revenue: Third quarter net sales increased 2.1 percent to $17.6 billion from $17.3 billion last year, reflecting a 1.9 percent increase in comparable sales combined with sales from new stores.

Adjustments: Adjusted EPS were 86 cents, up 8.6 percent from 79 cents in 2014. GAAP EPS from continuing operations were 76 cents, compared with 82 cents in third quarter 2014, reflecting asset-impairment, data breach and restructuring expenses that were excluded from Adjusted EPS.

Hit, Miss or Beat: Target hit/slightly beat Wall Street’s forecasts for the quarter. Analysts polled by Yahoo Finance expected EPS of 86 cents and revenues of $17.6 billion.

Executive Insights: “It’s clear that our strategy is working and we’re delivering on the financial commitments we laid out last March. Following extended period of time of declines traffic has turned positive over the last four quarters and [has been] accelerating on a two year basis. Sales in signature categories has been growing much faster than our overall sales and they are clearly exceeding industry benchmarks. So while consumers continue to spend cautiously we feel confident as we enter the holiday season and we’re focused on continuing to deliver on both our strategic priorities and our financial goals.” – Cornell during Q3 call

Cornell on digital: “We know that our digital investments drive engagements and sales in all of our channels. And we’re pleased that our third quarter sales were at the high end of our expectation. However, we believe we have an opportunity to accelerate digital transactions enhancing the experience on Target.com. Beyond our effort to streamline the guest experience on our site, our teams rolling out multiple initiatives that we expect to drive digital traffic in sales over time. And once again this holiday season, we expect to be offering free shipping on all digital orders.”

Looking Ahead: Target raised its full-year guidance. The company expects full-year adjusted EPS of $4.65 to $4.75, compared with prior guidance of $4.60 to $4.75.

Analyst Insights: “We found today’s press release encouraging as sales trends were better than expected, the e-commerce business continued to perform well, and commentary around Q4 was positive. Our Buy rating is based on Target’s strong merchandising, prioritized investments around digital and a strong balance sheet that could yield incremental share buyback over time.” – Citi Research analyst Kate McShane

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