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Target’s Q3 Earnings: Stellar Growth, Higher EPS Outlook

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Target (TGT) stock soared more than 9% in the premarket session today following its robust fiscal 2019 third-quarter results and upbeat earnings outlook. The retailer’s adjusted earnings once again registered phenomenal growth and beat analysts’ estimates by a wide margin. Its third-quarter sales also sustained momentum and came in ahead of analysts’ consensus estimate.

Target’s stellar financial performance was the result of its robust comps. Moreover, margin expansion and a lower outstanding share count drove exceptional EPS growth. Its adjusted EPS increased at a double-digit rate for the sixth consecutive quarter.

Buoyed by robust EPS growth in the first nine months of fiscal 2019, Target once again increased its full-year EPS outlook.

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Target’s earnings in brief

Target posted total revenue of $18.7 billion, up 4.7% YoY (year-over-year), in the third quarter. Its revenue came in above analysts’ estimate thanks to the continued momentum in its comps. Target’s comps rose 4.5% despite tough YoY (year-over-year) comparisons. Its traffic increased by 3.1%, while its ticket size improved 1.4%. Target’s comps have increased nearly 10% in the last two years.

Target’s expansion of its same-day digital fulfillment options and compelling assortments drove its comps, which rose 2.8% in stores. Meanwhile, the digital channel added 1.7 percentage points to its comps growth rate. Target’s digital sales increased by 31% YoY in the third quarter. Meanwhile, its same-day fulfillment services accounted for about 80% of its digital sales growth.

Like Target, the expansion of digital fulfillment services drove Walmart’s (WMT) comps in the US. The company’s comps rose 3.2% in the US, higher than analysts’ estimate of 2.9%. The expansion of Walmart’s online grocery pickup and delivery services drove its digital sales and, in turn, its comps. Walmart’s e-commerce sales growth rate accelerated and contributed 1.7 percentage points to its US comps.

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Besides its robust sales growth, Target impressed with continued improvement in its margins. Its gross margin expanded 110 basis points to 29.8%, reflecting a favorable category sales mix and cost savings. Efficient pricing and promotions also drove its gross margins. The retailer’s operating margin expanded by 80 basis points, reflecting higher gross margins. However, an increase in its selling, general, and administrative expense rate remained a drag.

Impressive sales growth and margin expansion drove Target’s third-quarter earnings. The company posted adjusted EPS of $1.36, which crushed analysts’ estimate of $1.09 and jumped 24.9% YoY.

Earnings outlook increase

The company’s stellar financial performance in the first nine months of the year led management to raise its full-year earnings outlook. Target once again boosted its fiscal 2019 earnings outlook. Earlier, Target raised its full-year EPS outlook by $0.15.

The retailer now expects its adjusted EPS to be $6.25–$6.45, up from $5.90–$6.20. As for the fourth quarter, Target expects its comps to increase by 3%–4%. Meanwhile, it expects its adjusted EPS to be in the range of $1.54–$1.74.

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