The American big box retailer Target (TGT, Financial) reported stronger-than-expected third quarter results that surpassed estimates. The company had announced some of its turnaround efforts in February this year, which had started showing results. Some of these efforts include opening smaller physical stores, making investments online and revamping existing locations. Despite the earnings and revenue beat, Target’s stocks plunged approximately 4% due to the highly aggressive atmosphere created by Wal-Mart (WMT, Financial) and Amazon (AMZN, Financial).
Snapshot of the quarter
The company’s net earnings per share (EPS) stood at 88 cents on a GAAP basis during the quarter, down 20% from the same period last year. Excluding non-recurring items, EPS stood at 91 cents versus a projection of 86 cents. Target’s total sales during the quarter were $16.67 billion versus an estimate of $16.61 billion. On the other hand, same-store sales spiked 0.9% as compared with the year-ago quarter.
Net income for the quarter stood at $480 million, which translates to 88 cents a share versus $608 million, or $1.06 a share reported in the same period last year. The company witnessed an increase in expenses arising from higher compensation costs in the form of a rise in employee incentives and wage rate. As a matter of fact, the company has now provided employees a minimum wage rate of $11 per hour and looks forward to paying $15 an hour by the end of 2020.
Target’s gross profit in quarter three surged 1% to $4.96 billion while gross margin fell to 29.7%. Operating income amounted to $869 million, down 17.8% from the same period last year. Operating margin declined 5.2%. At the end of third quarter, Target had more than 1,800 locations that included 276 stores larger than 170,000 square feet and 44 stores smaller than 49,999 square feet.
The company’s balance of cash and cash equivalents stood at $2.28 billion at the end of the third quarter. While long-term debt and other borrowings came in at $11.28 billion, shareholders’ investment was $11.14 billion.
Turnaround efforts
The company has grown tremendously compared with few years ago when it comes to fulfilling online orders. At present, Target is able to fulfill online orders across 1,400 locations versus only 140 locations few years back. Moreover, in the upcoming holiday season, Target looks to engage 100,000 seasonal workers in view of creating a fresh and better physical store environment, in addition carrying out online orders resourcefully.
Target has also worked toward building its omni-channel marketing, which brings together different types of marketing techniques, bridging both online and offline marketing procedures by using mobile, television, social media and e-commerce in order to give customers a phenomenal shopping experience. The company also continues to reap benefits from the Google (GOOG, Financial) Express shopping app. Once a customer sets up a Google Express account, he can shop from multiple stores like Wal-Mart, Amazon, Costco (COST, Financial) and others. Target allows customer to shop using Google Express including voice-activated shopping.
Future guidance
The big-box retailer estimates fourth-quarter adjusted EPS to range from $1.05 to $1.25 a share while analysts forecast EPS of $1.24 a share for the quarter. For the whole year, EPS is projected to lie between $4.40 and $4.60 per share. Moreover, comps in the fourth quarter are expected to grow at a flat rate of 2% and for fiscal 2017, comps are projected to rise 1%. Time will tell whether the projections match with the actual results.
Disclosure: I do not hold any position in the stocks mentioned in this article.
