Why Target’s Fiscal 2Q17 Earnings Are Projected to Decline
Wall Street’s consensus
Target’s management recently updated its fiscal 2Q17 guidance and stated that it now expects its adjusted EPS to stand at the high end of its projected range of $0.95–$1.15. The company saw improved sales trends in the first two months of fiscal 2Q17, which could boost its bottom line growth. Plus, tax benefits are expected to add about $0.05–$0.09 to the company’s quarterly EPS.
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Why Target’s EPS could decline
Target’s earnings per share are projected to fall despite benefiting from improved sales and lower taxes. Target’s bottom-line results could take a hit from increased business investments and higher competition. The company’s investments are intended to drive store traffic and fend off a growing threat from Amazon (AMZN). Increased fulfillment costs associated with higher digital sales could take a toll on its profitability.
In comparison, rival Walmart’s (WMT) earnings per share for fiscal 2Q182 are also projected to remain muted despite the company generating higher store traffic in the US (SPY). Walmart is also making significant investments in the business, which could pressure its bottom-line performance.
However, Costco (COST) is expected to mark double-digit growth in its bottom line for its upcoming quarter. The company’s bottom line is likely to benefit from strong sales and higher savings from its membership fee hike and its shift to the Citi Visa co-brand card program.
Mass merchandisers are increasing their investments into their businesses and strengthening their digital presence to withstand growing competition from Amazon and deep discounters such as Aldi and Lidl. In turn, this affects their profitability.