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Analysts Expect Target’s Earnings to Fall in 3Q17

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Analysts Expect Target’s Earnings to Fall in 3Q17 PART 2 OF 5

Analysts Expect Target’s Earnings to Fall in 3Q17

Analysts’ expectations

Target (TGT) will announce its fiscal 3Q17 earnings on November 15, 2017. Analysts expect Target to report earnings of $0.85 per share in fiscal 3Q17—down 18.3% on a YoY (year-over-year) basis. Target’s EPS (earnings per share) is expected to benefit from improved sales and cost-saving initiatives. However, continued investments in growth initiatives are expected to more than offset the leverage from increased sales.

Analysts Expect Target’s Earnings to Fall in 3Q17

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What could impact Target’s EPS?

Target is investing to drive its store traffic, which is expected to hurt its margins in the near term. Target reduced the prices on thousands of items to compete with Amazon.com (AMZN) and Walmart (WMT), which could pressure its profitability. Higher fulfillment costs associated with the rise in digital sales is projected to dent its margins.

Notably, Target raised its fiscal 2017 EPS guidance during the last reported quarter. Target estimates its adjusted EPS of $4.34–$4.54. However, the projected guidance reflects a YoY decline. The rise in costs is expected to pressure its earnings in upcoming quarters. For fiscal 3Q17, Target expects its bottom line to be $0.75–$0.95—down 8.7% to 27.9% YoY.

Increased sales, driven by the rise in average store traffic and more digital sales, are expected to support the EPS in upcoming quarters. The anticipated decline in the tax rate could help the company’s bottom line.

In comparison, Costco’s (COST) EPS rose 17.5% YoY in the last quarter, which reflects stellar sales and increased cost savings from the co-branded card. Meanwhile, analysts expect Walmart’s EPS to fall 1.0% in its upcoming quarter, which reflects an increased investment in price.

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