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Factors Impacting Target’s Earnings in Fiscal 2017

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Factors impacting Target’s EPS

Although Target (TGT) was able to revive its sales during fiscal 2Q17, its adjusted EPS (earnings per share) remained flat. Its benefits from improved comps, cost-savings efforts, and lower interest expenses were more than offset by costs related to growth initiatives such as higher fulfillment charges and value pricing.

This trend is likely to continue as the company is aggressively investing in growth measures to stave off increased competition from Walmart (WMT), Amazon (AMZN), and Costco (COST).

In comparison, Walmart’s EPS showed improvement during the first half of the current fiscal year. The benefits Walmart garnered from sales leverage were more than offset by the increased costs associated with business investments. 

Costco could post higher profitability due to strong sales, increased membership fee income, and cost savings from its shift to the Citi Visa co-branded card.

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Outlook

Following its strong fiscal 1H17 results, Target’s management lifted its fiscal 2017 adjusted outlook during the 2Q17 conference call. Target expects its adjusted earnings to be $4.34–$4.54, up from its earlier expectation of $3.80–$4.20.

Even after the upgrade in guidance, the company’s EPS is likely to register a decline on a year-over-year basis, reflecting higher costs. Target’s fiscal 3Q17 EPS is estimated to benefit from a lower tax rate and a slight improvement in sales.

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