Will Target’s Moment in the Sun Last?

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Target Corp. (NYSE: TGT) reported second-quarter 2019 results before markets opened Wednesday. The big-box retailer posted adjusted diluted earnings per share (EPS) of $1.82 and $18.42 billion in revenues. In the same period a year ago, it reported EPS of $1.47 on revenue of $17.78 billion. Second-quarter results also compare to consensus estimates of $1.62 in EPS and $18.34 billion in revenue.

Same-store sales increased by 3.4% compared with the second quarter of 2018. Digital channel sales rose 34% and contributed 1.8 points to same-store sales growth. Store traffic rose 2.4% in the quarter. Operating income rose by 16.9% from $1.13 billion last year to $1.32 billion.

Target also reported that its digital channel accounted for 7.3% of total sales, up from 5.6% in the second quarter of last year. For the first half of 2019, digital sales generated 5.4% of all sales, flat compared to the first six months of 2018.

Higher digital fulfillment and supply chain costs crimped Target’s margin rate in the quarter, even though the rate rose from 30.3% last year to 30.6%. The company’s decision to compete with Amazon and Walmart on fast delivery has paid off.

In its outlook for the third quarter and the second half of 2019, Target said it expects same-store sales growth of around 3.4% in both periods, matching growth for the first half of the year. For the third quarter, the company expects adjusted EPS of $1.04 to $1.24. For all of 2019, Target raised its GAAP and adjusted EPS forecasts from a range of $5.75 to $6.05 to a new range of $5.90 to $6.20.

Analysts had forecast EPS for the fourth fiscal quarter at $1.16 on revenues of $18.42 billion. For the full year, analysts are looking for EPS of $5.93 and revenues of $78.2 billion.

Brian Cornell, Target’s board chair and chief executive, said:

Traffic and sales continue to grow while our EPS reached an all-time high, driven by the strength of our team’s execution and their focus on delivering for our guests. Because of our outstanding performance in the first half of the year and our confidence moving forward, we are increasing our guidance for full-year earnings per share.

Over the past 12 months, Target stock has gained a lackluster 2.7% although it has added about 30% to date in 2019. The upgraded guidance is giving the stock a solid bump in premarket trading this morning that is well above the current 52-week high. If the share price boost holds after the opening bell, this could be the biggest one-day gain in 11 years, according to MarketWatch.

Target’s shares traded up more than 15% in Wednesday’s premarket at $98.70, above the 52-week range of $60.15 to $90.39. The consensus 12-month price target was $89.65 before results were announced.

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