Target’s Q4 Earnings: What Can Investors Expect?

Target (NYSE:TGT) is scheduled to release its results for the fourth quarter of fiscal 2019 on March 3. The stock rose 94% in 2019. The company delivered strong comparable sales and improved margins. However, Target disappointed investors by reporting lower-than-expected holiday sales earlier this year. The company’s comparable sales rose 1.4% during the holiday season compared to 5.7% during the holiday season in 2018. Softer-than-expected sales in electronics, toys, and certain home merchandise categories impacted the company’s holiday sales.

So far, Target stock has fallen 19.7% in 2020. Meanwhile, the S&P 500 and the Dow Jones have fallen 8.6% and 11% year-to-date, respectively, as of February 28. Fears about the coronavirus caused turmoil in the US and global financial markets in recent weeks.

Expectations from Target’s Q4 earnings

Target beat analysts’ revenue and earnings expectations for each of the first three quarters of fiscal 2019. Notably, the company’s third-quarter revenue grew 4.7% YoY (year-over-year) to $18.7 billion, while its comparable sales grew 4.5%. The third-quarter adjusted EPS rose 24.8% YoY to $1.36, which reflected the benefit of improved margins. Merchandising efforts and a favorable category sales mix boosted the company’s third-quarter margins. Analysts expected revenue of $18.5 billion and an adjusted EPS of $1.19.

Despite weak holiday sales, Target reaffirmed its fourth-quarter guidance in January. The company expects comparable sales growth of 3%–4% for the fourth quarter. Target expects a fourth-quarter adjusted EPS of $1.54–$1.74. For fiscal 2019, the company predicts an adjusted EPS of $6.25–$6.45.

Analysts expect Target’s fourth-quarter revenue to grow 2.2% YoY to $23.5 billion. They expect the company’s adjusted EPS to increase by 7.8% to $1.65.

Walmart’s (NYSE:WMT) fourth-quarter revenue grew 2.1% to $141.7 billion. The company’s US comparable sales grew 1.9%, while US e-commerce sales rose 35%. However, Walmart fell short of analysts’ revenue estimate of $142.5 billion. The company’s adjusted EPS of $1.38 also lagged forecast of $1.43. Walmart needs to compete with e-commerce giant Amazon (NASDAQ:AMZN). According to recent news, Walmart will launch a new membership program called “Walmart+” to compete with Amazon Prime.

Strategic efforts

Target has invested in its growth strategies to fight the intense rivalry from Amazon. The company plans to enhance customers’ shopping experience through faster delivery and an attractive merchandise assortment. Target’s digital comparable sales grew 31% in the third quarter. The company attributed 80% of its digital sales growth to facilities like same-day fulfillment options, Drive Up, in-store Pick-Up, and Shipt.

Target’s recent initiatives to enhance its merchandise offerings include its collaboration with Disney. Under the partnership, the company launched 25 Disney stores in select Target locations in October. In the third-quarter conference call, the company disclosed that it would extend the collaboration to 40 additional locations.

Target is also focusing on its private brand offerings to enhance its margins. In September 2019, the company launched “Good & Gather,” which is a new food and beverage brand. The company received a positive response. Good & Gather claims to contain high-quality ingredients with no artificial flavors, colors, or sweeteners.

Currently, about 64% or 18 out of 28 analysts that follow Target recommend a “buy,” while ten recommend a “hold.” None of the analysts recommend a “sell.” The company’s guidance for fiscal 2020 will likely influence analysts’ ratings and target price.