Why Target Earnings Are Crushing the Stock

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Target Corp. (NYSE: TGT) reported third-quarter 2017 results before markets opened Wednesday. The big-box retailer posted adjusted earnings per share (EPS) of $0.91 and $16.67 billion in revenues. In the same period a year ago, the company reported EPS of $1.04 on revenue of $16.44 billion. Third-quarter results also compare to consensus estimates for EPS of $0.86 and $16.6 billion in revenue.

Same-store sales rose 0.9% compared with the third quarter of 2016. Digital channel sales rose 24% and contributed 0.8 points to same-store sales growth.

In its outlook for the fourth quarter of 2017, Target said it expects same-store sales growth of flat to up 2% and full-year growth of flat to 1%. For the quarter, the company expects adjusted EPS of $1.05 to $1.25. For all of 2017, the adjusted EPS forecast was revised from a prior range of $4.34 to $4.54 to a new range of $4.40 to $4.60

Analysts had forecast EPS for the fourth quarter at $1.24 on revenues of $21.84 billion. For the full year, analysts are looking for EPS of $4.52 and revenues of $70.8 billion.

Brian Cornell, Target’s CEO, said:

We’re very pleased with Target’s third quarter performance, including traffic and sales growth that demonstrate we’re building on the progress we saw in the first half of the year. The investments we’re making in our business will help Target drive long-term success and ensure we’re well positioned to deliver for guests in the all-important holiday season. … While we expect the fourth-quarter environment to be highly competitive, we are very confident in our holiday season plans.

In a nutshell, Target’s fourth-quarter EPS estimate is mostly lower than the consensus and the “highly competitive” holiday shopping season the CEO foresees is not conducive to higher profits. To be successful, Target is going to have to compete on price, and that’s not the yellow brick road to profits.

Investors have no patience with lukewarm forecasts these days, especially from brick-and-mortar retailers. The numbers have to be great, and even then that may not be enough.

Target’s shares traded down 4.4% in Wednesday’s premarket, at $57.38 in a 52-week range of $48.56 to $79.33. The consensus 12-month price target was $60.48 before results were announced.