Target Stock Rose on Stellar Earnings, Higher Guidance

  • Target stock rose more than 15% due to stronger-than-expected second-quarter results.
  • The company’s earnings beat the consensus estimate by a wide margin.
  • Target raised its fiscal earnings outlook.

Why did Target stock rise?

Target (TGT) stock rose more than 15% in the pre-market session following its stellar second-quarter results and strong outlook. The company’s adjusted earnings registered phenomenal growth and beat analysts’ estimate by a wide margin. The second-quarter sales beat the consensus estimate due to sustained momentum in Target’s comps.

Target’s CEO, Brian Cornell, said that “compelling assortments, expanded fulfillment options, and competitive pricing” continue to drive the company’s traffic. Buoyed by a strong performance in the first half, Target raised its fiscal earnings outlook.

Target’s second-quarter earnings

Target posted total revenues of $18.4 billion—up 3.6% YoY (year-over-year). The revenues beat analysts’ estimate due to sustained momentum in the company’s comps. Target’s comps rose 3.4% due to a 2.4% rise in traffic. The company’s comps have increased by about 10% over the last two years—the best comps in more than a decade.

Retailers, including Target and Walmart (WMT), drive their comps by focusing on assortments and expanding convenient digital fulfillment options. Target’s digital sales rose 34% during the quarter and added 1.8% to the comps growth rate. Walmart’s digital sales rose 37% during the second quarter and contributed 1.4% to the comps growth rate. The company’s comps increased 2.8% during the second quarter.

Besides stellar sales, Target’s margins were impressive. The company’s gross margin improved by 30 basis points. Meanwhile, the operating margin expanded by 80 basis points. A favorable category sales mix and higher productivity supported the company’s margins. However, higher digital fulfillment costs continued to hurt. Solid sales growth and margin expansion drove Target’s earnings. The company’s earnings registered strong growth. Target posted an adjusted EPS of $1.82, which beat analysts’ estimate of $1.62 and rose 23.8% YoY.

Higher earnings guidance 

Target’s management increased its fiscal earnings outlook. The company had a impressive financial performance in the first half. Target boosted its fiscal 2019 earnings outlook by $0.15. The company expects its adjusted EPS to be $5.90–$6.20—up from $5.75–$6.05. In the third quarter, Target expects its adjusted EPS to be $1.04–$1.24.

Before the second-quarter earnings, we expected Target stock to benefit from profitable growth. The company’s impressive financial performance and upbeat guidance will likely drive its shares higher. We expect Target to sustain its sales and earnings momentum in upcoming quarters.

Target expects its comps to increase 3.4% in the third quarter. Compelling assortments and more digital fulfillment options will likely drive the company’s traffic. More sales of private label products will likely support Target’s margins. The company’s profitability might improve despite higher digital fulfillment costs in the coming quarters.

Strong sales and exceptional earnings growth could support Target stock in upcoming quarters.