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Could Target’s Profitability Improve in Fiscal 1Q18?

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What analysts project

Target (TGT) is expected to announce its fiscal 1Q18[1. Fiscal 1Q18 ended April 30.] results on Wednesday, May 23. Analysts expect the company to sustain sales momentum in the quarter. Its bottom line is projected to return to growth after marking declines over the past several quarters.

Target’s top line is expected to benefit from its merchandising initiatives, including the launch of exclusive Only-at-Target brands. Store remodeling and value pricing should further support sales growth. Its remodeled stores are generating higher sales and productivity than the large, traditional ones. A healthy digital sales growth rate is expected to boost the company’s comparable store sales growth.

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Analysts expect Target’s bottom line to return to growth in fiscal 1Q18, which is a big positive since the company’s earnings took a beating recently due to investments in growth initiatives and margin headwinds. An anticipated decline in interest expenses and share repurchases and growth in high-margin categories are expected to drive its 1Q18 earnings. A lower tax rate could further cushion its bottom-line growth and support its growth initiatives.

However, price investments amid stiff competition from the likes of Walmart (WMT), Costco (COST), and Amazon (AMZN), as well as digital fulfillment costs associated with higher digital sales and new delivery options and higher wages, are expected to hurt Target’s top- and bottom-line growth.

Stock performance so far this year

Target stock has risen 11.7% on a YTD (year-to-date) basis as of May 14. Improving sales and earnings trends and healthy digital sales growth are driving the stock higher. In comparison, Costco stock has risen 5.2% YTD. Walmart stock has fallen 14.5%, reflecting pressure on margins and a deceleration in e-commerce sales growth. The S&P 500 Index (SPY) has risen 2.1% on a YTD basis.

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