Target shares tumble 9% as earnings miss mark, weighed down by higher costs

www.cnbc.com/2018/11/20/target-reports-q3-2018-earnings.html


TGT on Tuesday reported a mixed quarter, with revenue slightly topping analysts estimates but earnings falling short, as investments in its supply chain weighed on profits.

Despite the earnings miss, Target maintained its forecast for the full year, and said it’s “better positioned for this holiday season than ever before.”

Its shares were down 9 percent in premarket trading after falling as much as 10 percent.

Here’s what Target reported for its fiscal third quarter compared with what Wall Street was expecting, based on a poll of analysts by Refinitiv:

Earnings per share: $1.09, adjusted, vs. $1.12 expected Revenue: $17.82 billion vs. $17.80 billion expected Same-store sales: up 5.1 percent vs. growth of 5.2 percent expected Net income grew to $622 million, or $1.17 per share, compared with $478 million, or 87 cents per share, a year ago. Excluding one-time items, Target earned $1.09 per share, short of expectations for $1.12 per share, based on a survey by Refinitiv.

Total revenue climbed 5.6 percent from a year ago to $17.82 billion, slightly beating analysts’ estimates.

Sales at Target stores open for at least 12 months were up 5.1 percent, slightly short of expectations for growth of 5.2 percent. The company said digital sales rose 49 percent during the third quarter and contributed 1.9 percentage points to same-store sales growth. It said the number of transactions at its stores jumped 5.3 percent, while the average shopper’s ticket dropped 0.2 percent.

Target said its strongest sales gains during the quarter came from the toys, baby and beauty categories. The company has notably been devoting more space in some stores to sell toys following the demise of Toys R Us.

But investors were concerned about how higher expenses were eating into profits. Target’s third-quarter gross margin rate fell to 28.7 percent from 29.6 percent a year ago, with the company attributing the decline to higher supply chain costs as it fulfills more online orders ahead of the holiday season. It also said it ordered more holiday-related inventory ahead of the fourth quarter, earlier than when it did last year.

Target continues to expect adjusted earnings per share for the fiscal year to fall within a range of $5.30 to $5.50. For the holiday quarter, it’s anticipating same-store sales will be up roughly 5 percent.

“We plan to leverage our current momentum into 2019,” CEO Brian Cornell said in a statement.

But first, Target has to prove it can keep the momentum going through this holiday season, where some companies can make as much as 30 percent of their annual sales. The retailer has been pouring money into store renovations, while opening up smaller-format locations in urban cities and college towns. It continues to add more in-house brands for apparel and home goods, which offer higher margins than national labels. And it’s investing in logistics to be more competitive with Walmart and Amazon. This holiday season, for example, Target is dropping its minimum purchase threshold for free, two-day shipping, while Walmart still has a $35 threshold.

Target also said Tuesday it has met its hiring goals for the holidays to bring on 120,000 seasonal workers. There’s been some concern, more broadly, that retailers won’t be able to meet these lofty hiring goals with such a tight labor market in the U.S.

As of Monday’s market close, Target shares have rallied more than 35 percent over the past 12 months, bringing its market cap to roughly $41.1 billion.