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Analyzing Earnings per Share Growth Trends for Mass Merchandisers

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Target posted double-digit adjusted EPS growth in fiscal 2016

Target’s (TGT) adjusted earnings per share (or EPS) came in at $4.69 in fiscal 2016, up by 11.3% year-over-year (or YoY). That was higher than the earlier guidance provided by the retailer (XLP) (XRT), which envisioned a range of $4.45–$4.65 in fiscal 2016.

In fiscal 4Q16, Target grew its EPS by 2.1% YoY to $1.52. Although the company missed consensus Wall Street analyst estimates of $1.54, its EPS was within the company’s guidance range of $1.48–$1.58 provided in the third quarter earnings release.

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Target’s EPS drivers

As discussed in the previous article, Target’s earnings grew faster than its revenue in fiscal 2016, due to productivity enhancements resulting in improved margins. The retailer’s (RTH) EPS growth also benefited from the $3.4 billion in share buybacks that Target made in the year by repurchasing 44.7 million shares. The repurchased shares were retired. Target’s weighted average diluted share count declined by 1.1% in fiscal 2016.

On the other hand, Target’s peers Walmart (WMT) and Costco (COST) are slated to have highly divergent growth trends, and for varying rationales. While Target, Walmart, and Costco have pursued share buybacks and are looking to grow organically in different markets and formats, the investment impact and the outcomes of these buybacks are likely to be very different.

Plus, the higher US dollar has affected Walmart’s and Costco’s earnings growth more than Target’s. In fact, Target doesn’t have any overseas operations after its exit from Canada in fiscal 2015.

In fiscal 2016, Walmart’s top line took a $17.1 billion forex hit—the highest on record. Walmart’s EPS is expected to decline in fiscal 2017. The forex impact of the higher US dollar is expected to take a toll of $12 billion, or $0.20 per share in terms of EPS, according to the company’s assessment.

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