Target Corp. (TGT, Financial) reported better-than-expected second-quarter 2017 earnings, which will allow some breathing space for the retailer hit hard by competitive forces that dragged sales down. The stock is still down by more than 25% in the last year, but the earnings beat should allow Target to recover; however, a lot will depend on sales growth throughout the rest of the year.
Second-quarter comparable sales grew 1.3%, higher than the 0.7% the market was expecting. Target posted adjusted earnings per share of$1.23 on the back of $16.43 billion in revenues, beating the expected $1.19 EPS and revenues of $16.3 billion.
Target has been working double-time to turn things around as sales slip quarter after quarter. The company decided to reinvest $7 billion in the business and focus on building brands that can draw customers to its stores. When the plan was announced on Feb. 28, CEO Brian Cornell said the company was investing in the business with a long-term view.
“We’re putting digital first and evolving our stores, digital channels and supply chain to work together as a smart network that delivers on everything guests love about Target, including more than a dozen new brands we’ll introduce over the next two years," he said. "We’re confident our strategy meets the challenges of today and will lead us well into the future.”
These efforts have begun to pay off - especially on the online front - as digital sales surged 32% during the quarter, contributing 1.1 percentage points to comparable sales growth. Online sales, which grew 32% during the second quarter and 22%Ă‚ during the first quarter, brought growth back to Target. The company hopes the trend continues in the future.
The better-than-expected quarterly results have improved Target’s outlook for the rest of the year. The retailer now expects comparable store sales in 2017 to range between flat to plus or minus 1%. While the forecast is not significant, Target not accepting a sharp sustained decline is a positive sign as competition in retail is only increasing with each passing quarter.
Things are not going to get easier for big-box retailers moving forward as a strong Wal-Mart (WMT, Financial) and a surging Amazon (AMZN, Financial) leave them very little room to maneuver. Only companies that are able to differentiate themselves from the crowd will have a chance of survival over the long term. Target believes a deep plunge into e-commerce - while building exclusive brands and focusing on smaller format stores - will help them do that.
The stock, which has lost nearly one-fourth of its value in the last year, is not going to get back to its all-time high with one solid quarter report. But if the company manages to keep improving its sales numbers over the next four quarters, it has a realistic chance of getting closer to its 52-week high.
Disclosure: I have no positions in the stock mentioned above, and no intention to initiate a position in the next 72 hours.
