What to expect

Target (TGT) is expected to announce its fiscal 2019 first-quarter results on Wednesday, May 22. We expect Target to sustain its momentum in both sales and earnings. Target’s top line is likely to gain from continued improvement in comparable sales. Expansion of delivery options and merchandise offerings in combination with value pricing are expected to drive traffic, and in turn, its comparable sales in the first quarter. Moreover, store remodeling and the opening of small-format stores are expected to support sales growth.

The expected improvements in comparable sales and cost-saving initiatives are projected to support its margins. However, we expect Target’s gross and operating profit margins to stay low, reflecting higher digital fulfillment costs and an unfavorable mix.

Is Target a ‘Buy’ ahead of Q1 Earnings?

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Despite pressure on margins, we expect Target’s bottom line to mark high-single-digit growth in the first quarter. Benefits from sustained improvement in comparable sales and share repurchases are expected to drive Target’s first-quarter EPS.

Stock performance

Target stock is up 7.8% so far this year and underperformed the benchmark index. Margin worries and heightened competitive activity weighed on Target, which declined about 13% in the past one month.

In comparison, Walmart (WMT) and Costco (COST) have risen 7.7% and 19.2%, respectively, on a YTD basis as of May 14.

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