Target Corporation (TGT), the operator of general merchandise and food discount stores in the United States, is slated to report its third-quarter 2011 financial results on Wednesday, November 16. The current Zacks Consensus Estimate for the quarter is 74 cents a share. The Zacks Consensus estimates revenue at $16,323 million.
Second-Quarter 2011, a Synopsis
Target’s second quarter 2011 results were better than expected on the back of higher sales and improved profitability in its credit card business. The quarterly earnings of $1.03 per share beat the Zacks Consensus Estimate of 97 cents, and increased from 92 cents earned in the prior-year quarter.
Total revenue climbed 4.6% to $16,240 million from the prior-year quarter, and comfortably beat the Zacks Consensus Estimate of $16,194 million. Retail sales grew 5.1% to $15,895 million with shoppers gradually opening their purse strings, although cautiously.
Minneapolis, Minnesota based Target’s said that comparable-store sales grew 3.9% compared with a 1.7% increase registered in the prior-year quarter. The number of transactions rose marginally by 0.5%, whereas the average transaction amount climbed 3.5%.
Management Guided
At its last earnings call, management guided third quarter earnings between 70 cents and 75 cents a share, and fiscal 2011 earnings in the range of $4.15 to $4.30.
Third-Quarter 2011 Consensus
The analysts polled by Zacks, expect Target to post third-quarter 2011 earnings of 74 cents a share. The current Zacks Consensus Estimate remains in line with the year-ago quarter’s reported earnings, ranging from a low of 72 cents to a high of 76 cents.
Zacks Agreement & Magnitude
Of the 20 analysts following the stock, 3 analysts revised their estimates upward, while only one analyst lowered the same in the last 30 days, resulting in a penny’s increase in the Zacks Consensus Estimate to 74 cents. In the last 7 days, only one analyst increased the estimate and none lowered the same, thereby keeping the Zacks Consensus Estimate unchanged.
What Drives Estimate Revisions
The movement in the Zacks Consensus Estimate follows the sales results for the four weeks ended October 29, 2011. The company witnessed a sales increase of 4.3% to $4,839 million and comparable-store sales growth of 3.3%. The comps were below what analysts’ expected, but fared better than the 1.7% uptick experienced in the same period last year. These were enough for the analysts to tweak their estimates. Comps for the third quarter of 2011 rose 4.3% following increases of 3.9% in the previous quarter and 1.6% in the year-ago quarter.
Positive Earnings Surprise History
With respect to earnings surprises, Target topped the Zacks Consensus Estimate over the last four quarters in the range of 3.6% to 8.8%. The average remained at 6%. This suggests that Target has beaten the Zacks Consensus Estimate by an average of 6% in the trailing four quarters.
Price Stats
Since its last earnings release on August 17, 2011, Target’s market price has increased 5% to $53.07 as of November 11. During trading hours on November 11, the stock reached the day low of $51.98 and the day high of $53.13. The stock price is within the range of the 52-week low-high range of $45.28 attained on August 8, 2011 and $60.97 achieved on January 3, 2011. From August 17, 2011 to November 11, 2011, the stock dropped to a low of $47.62 on October 4, 2011 and rose to a high of $56.00 on October 27, 2011.
Let’s Conclude
Target’s efficient marketing, multi-channel strategy, product innovation, compelling pricing strategy and new merchandise assortments, should drive comparable-store sales and operating margins in the long term. We expect the company to gain market share, and believe that focus on consumable items should boost sales and earnings in a sluggish consumer environment.
Target now tends to focus more on store renovations and store sales productivity, smaller format stores, and opportunities to open stores in international markets.
The greater concentration of Target’s revenue generating capability in a few regions of the United States, poses a threat, compared to the geographically diversified and more resourceful Wal-Mart Stores Inc. (WMT) and Costco Wholesale Corporation (COST).
Consequently, we prefer to have a long-term ‘Neutral’ rating on the stock. However, Target holds a Zacks #2 Rank that translates into a short-term ‘Buy’ recommendation.
COSTCO WHOLE CP (COST): Free Stock Analysis Report
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