Analysts Expect Target’s Earnings to Fall in 3Q17

1 2 3 4 5
Part 4
Analysts Expect Target’s Earnings to Fall in 3Q17 PART 4 OF 5

Why Target’s 3Q17 Margins Could Remain Muted

Margin trend

Target’s (TGT) fiscal 1H17 remained muted as higher business investments continued to hurt the company’s margins. Increased costs associated with rising e-commerce sales also dented the margins.

During the previous quarter, the company’s gross margin fell by 40 basis points. Meanwhile, the EBIT (earnings before interest and tax) margin fell by 90 basis points on a YoY (year-over-year) basis. Price investments and higher digital fulfillment charges had a negative impact on Target’s margins.

Why Target’s 3Q17 Margins Could Remain Muted

Interested in TGT? Don't miss the next report.

Receive e-mail alerts for new research on TGT

Success! You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

In comparison, the company’s peers including Costco (COST), Walmart (WMT), and Kroger (KR) are also experiencing pressure on their margins due to increased price investments to fend off growing completion from Amazon.com (AMZN) and deep discounters like Aldi and Lidl.

During the last reported quarter, Costco’s gross margin fell by 15 basis points despite the leverage from stellar sales growth. Its increased investment in price more than offset the benefit.


Target’s margins are expected to fall in upcoming quarters. Continued price investments will likely remain a drag. Target announced price cuts on several products to drive store traffic, which is expected to hurt its margins. Rising e-commerce sales are projected to result in a higher digital fulfillment cost, which could impact the profitability. However, increased sales and closing underperforming stores are expected to help the company’s margins.

Target’s management expects its fiscal 3Q17 EBIT to fall by $230 million on a YoY basis, which reflects higher investments in growth initiatives and increased depreciation and amortization expenses.


Please select a profession that best describes you: