Why Target Earnings Made the Cut

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Target Corp. (NYSE: TGT) released its fiscal third-quarter earnings report before the markets opened on Wednesday. This company is rounding out the major retailers reporting third-quarter results ahead of the holiday season, and just like most others Target hit the mark. Guidance for the fiscal fourth quarter was more or less in line, but what really pushed shares up was an incredible bottom line beat this quarter. However, we have also seen weaker retail earnings recently from both Home Depot Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE: LOW).

Target posted $1.04 in earnings per share (EPS) and $16.44 billion in revenue, versus consensus estimates from Thomson Reuters of $0.83 in EPS and revenue of $16.30 billion. The same period of last year reportedly had EPS of $0.86 and $17.61 billion in revenue.

Net sales in this quarter also reflected a decrease in comparable sales of 0.2%. Comparable digital channel sales grew 26% and contributed 0.7 percentage points to comparable sales growth.

In terms of guidance for the fourth quarter, the company expects to see sales growth in the range of −1% to 1% and EPS between $1.55 and $1.75. The consensus estimates are calling for $20.86 billion in net revenues and $1.60 in EPS.

During the third quarter, the company returned $1.2 billion to shareholders, with dividends of $345 million and share repurchases of $878 million. The board of directors authorized a new $5 billion share repurchase program. Repurchases through this program will begin upon completion of the prior $10 billion program, of which there is $300 million of capacity remaining.

On the books, Target’s cash and cash equivalents totaled $1.23 billion at the end of the quarter, versus $1.98 billion in the same period of last year.

Brian Cornell, board chair and chief executive of Target, commented:

We are very pleased with our third quarter financial results, which reflect meaningful improvement in our traffic and sales trends and much stronger-than-expected profitability. Favorable gross margin mix and efficient execution by our team drove third quarter EPS performance well beyond our guidance. We also continued to gain market share in key Signature Categories and saw unexpectedly strong sales in the Back-to-School and Back-to-College season. As we move into the biggest quarter of the year, we are pleased with our inventory position and confident that our team will deliver a great guest experience as they bring our merchandising and marketing plans to life throughout the holiday season.

Shares of Target traded up 9% to $77.87 early Wednesday. Note that the consensus analyst price target is $74.28, and a 52-week trading range is $65.50 to $84.14.