This places TGT in a favorable position to surprise to the upside in the discretionary sales category.įor one, overall inflation is on the mend. There have been numerous downgrades since their Q1 release as well. Heading into earnings, expectations are low since management had already guided for a softer discretionary sales environment. While the repayments haven’t kicked in just yet, observers should expect analysts to raise the topic during the post-release conference call. This could have significant implications for TGT. And the trend was found to be even more pronounced with consumers with student loans. Research conducted by analysts at UBS also found that apparel is the category consumers defer the most during inflationary periods. This could further amplify any fallout from a significant pullback in overall discretionary spending. Their greater reliance on younger customers is also viewed as a risk due to the pending restart in student loan repayments. For some Wall Street analysts, that’s enough to warrant a downgrade in the stock. At present, it’s about a 51/49 split between their discretionary and consumable categories. What To Watch In Target’s Q2 Earningsĭiscretionary Spending: One aspect of the bearish view on TGT is the greater weighting of discretionary categories in their sales mix. Both were well below the consensus of $1.93/share and $8.47/share, respectively.Īt present, estimates for the quarter stand at EPS of $1.50/share and revenues of +$25.36B. This translated to an expected EPS midpoint of $1.50/share for the quarter and $8.25/share for the full year. The range for expected profit was similarly wide.Īltogether, Fiddelke guided for a higher YOY margin rate in Q2 but lower sequentially. Resultingly, he provided a wide range for sales in-line with a low single-digit decline. In Q1, that represented 100 basis points (“bps”) off gross margins.Īside from shrink, CFO, Michael Fiddelke, pointed to softer comparable trends as they exited the first quarter. From a dollar standpoint, the impact was estimated to be +$500M. CEO Brian Cornell noted on the conference call that worsening shrink rates were putting significant pressure on their financial results. The softness was attributable in large part to expectations for increased retail theft (“shrink”). The stock, nevertheless, dipped following the release due to soft guidance. ![]() ![]() Both beat expectations by +$40M and $0.29/share, respectively. In Q1, Target reported total quarterly sales of +$25.3B and non-GAAP EPS of $2.05/share. ![]() Seeking Alpha - Profitability Metrics Of TGT Compared To Peers TGT Guidance and Estimates Yet despite this, gross margins remain comparable between the two companies. Seeking Alpha - Revenue And EBITDA Growth Of TGT Compared To Peers The disparity isn’t unreasonable, given that WMT’s YOY revenue growth is nearly 4x that of TGT. Seeking Alpha - Valuation Metrics Of TGT Compared To Peers Shares, however, are priced at a significant discount to WMT, which commands nearly 30x. The stock carries a forward earnings multiple of 16x, just shy of their five-year average of 18x. Perhaps surprisingly, the weakness hasn’t materially affected their forward valuation. ![]() Seeking Alpha - YTD Returns Of TGT Compared To Peers Walmart ( WMT ), for example, is up about 12%. And most in the peer group are in the positive as well. The broader S&P 500 Index ( SP500, SPY ), in stark contrast, is up the same in the other direction. Shares in TGT have lagged over the past year. Target Corporation ( NYSE: TGT) is scheduled to report its second fiscal quarter earnings in the pre-market session on Wednesday.
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