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Mayank Marwah
Mayank Marwah
Articles (687) 

What Investors Need to Know About Target's 1st-Quarter Results

Volatile customer behavior impacts revenue

Target Corp. (NYSE:TGT) posted its first-quarter results recently and gave a cautious outlook on the back of increasing customer volatility. The company's shares fell as much as 11%, the retailer’s steepest intraday decline in more than seven years.

Target’s first-quarter sales remained unimpressive, falling short of analyst expectations. Unseasonable weather and soft demand for electronics and groceries led to poor sales numbers.

The company’s dismal numbers and weak outlook worried investors to the extent that they sold shares of other retailers including Walmart Stores (NYSE:WMT), Macy's (NYSE:M), JCPenney (NYSE:JCP). Here’s a look at some key numbers and what to expect going forward.

Quarter in a snapshot

Target’s revenue for the quarter dropped 5.4% to $16.2 billion. In the year-ago quarter, the company recorded revenue of $17.1 billion. However, Target’s digital sales rose 23%. The company generated quarterly net income of $632 million compared with $635 million in the last year same period. Earnings per share grew 7% to $1.05 for the quarter, which is the result of the company’s cost-cutting efforts.

Target witnessed six successive quarters of traffic growth, though it grew marginally at 0.3% during the quarter compared with 1.3% gain in the preceding quarter. Comparable store sales improved 1.2%, short of growth estimates of 1.6%. However, the retailer managed to edge past its rivals Macy’s and Nordstrom (NYSE:JWN) that saw same-store sales decline 6% and 2%.

Target’s gross margin came in at 31% of sales, which is primarily attributable to the company’s pharmacy business. That compares with Macy’s 36% and Nordstrom’s 34% gross margin. Target’s lucrative categories including apparel, kids and wellness continued to perform better than the other segments of the store. This helped the retailer sustain profits even as revenue softened.

CEO Brian Cornell said during a conference call, "We're approaching our business with appropriate caution as sales trends at Target and many of our key competitors (have) weakened."

What to expect

Target gave a conservative outlook for the second-quarter result. It says that second-quarter results might well be down 2% as the customer traffic in Target stores is weak, forcing the management to lower expectations. However, Target remains confident about its earnings in the second quarter ranging between $1.00 and $1.20 per share before special items.

Though Target experienced weakness in the first half of the year, the company believes its full-year earnings target is within reach. Cornell said the cold weather curbed consumer spending in the beginning of the year.

According to industry analysts, the Minneapolis company’s performance has been soft largely on account of the sector’s weakness. While the U.S. Commerce Department registered solid retails sales during April, a shift from traditional stores to online purchases from Amazon (NASDAQ:AMZN) and other retailers has been noted. This is evident from the 23% growth seen in Target’s digital sales, though it just forms 3.5% of the company’s consolidated revenue. Consumers are spending more on online buying, real estate deals and vehicles. As such, Target is increasing its focus on digital sales to compensate for the falling customer traffic in traditional stores.

Analysts believe Target’s long-term potential stays healthy with Cornell’s turnaround strategy. Though the company’s comparable-store sales gain wasn’t remarkable, it was in the positive territory unlike Macy’s and Nordstrom’s. Target needs to revamp its grocery department and streamline its supply chain further. Besides, the company is also working to beef up its initiatives in digital sales to tap the online purchase market.

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About the author:

Mayank Marwah
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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