Target earnings: Eyes are on market share gains after Walmart results, Toys ‘R’ Us liquidation

Target Corp. is scheduled to announce second-quarter results on Wednesday before the opening bell and Credit Suisse analysts are keeping an eye peeled for market share gains after strong Walmart Inc. results last week.

Analysts led by Seth Sigman say that Target TGT, -0.10% appears poised to deliver strong results. They’re looking for a same-store sales bump after Walmart WMT, +0.20%  reported a U.S. same-store sales increase of 4.5%, acceleration in e-commerce, and margin improvement to go along with revenue gains.

Walmart also reported traffic and ticket growth of more than 2%, and both earnings and sales beat expectations.

“Walmart’s results were also better than expected and the dollar growth was substantial, raising questions about balance of share versus consumer demand growth,” Credit Suisse wrote. “We think Target held its own.”

Walmart executives and others have commented on the strength of the consumer, with low unemployment one of the factors contributing to spending confidence. Those factors could benefit Target as well.

“Walmart’s strength (beyond season) seems to indicate a stronger consumer, perhaps even a stronger low-income consumer,” Credit Suisse said.

Analysts say they’ll be looking for proof that Target has invested enough in things like price and merchandising, and that it is snapping up share in areas like baby and toys, where the Toys ‘R’ Us liquidation has left customers up for grabs.

“We are looking for progress across a number of categories and initiatives (grocery, toys, remodels, brand launches, etc/) beyond calendar shifts and seasonal noise, to help support the path to comps greater than 2% in the second half as comparisons get more difficult,” Credit Suisse said.

Credit Suisse rates Target shares outperform with an $86 price target.

Target has an average stock rating of hold with an average $78.82 price target, according to 25 analysts polled by FactSet.

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Here’s what to expect:

Earnings: FactSet expects earnings of $1.40 per share, up from $1.23 last year.

Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, are guiding for earnings of $1.41.

Target missed earnings expectations that last two quarters, according to FactSet data.

Revenue: FactSet is guiding for revenue of $17.23 billion, up from $16.43 billion last year.

Estimize expects revenue of $17.37 billion.

Target beat revenue expectations the last five quarters, according to FactSet.

FactSet is guiding for same-store sales growth of 4.1%.

Stock price: Target shares have rallied 8.3% over the past three months, and have gained 27.6% for the year to date.

The S&P 500 index SPX, +0.54%  is up 5% for the last three months, and up nearly 7.4% for 2018 so far.

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Other issues:

-UBS is bullish about Target’s results, guiding for same-store sales growth of 4.5%, which would be the strongest performance since 2012. Analysts led by Michael Lasser think the retailer has a number of things working in its favor, including store renovations, Toys ‘R’ Us closures, e-commerce initiatives, and an extra week for back-to-school shopping.

“Target is lapping its toughest digital compare of the year, but its initiatives should still support 30%-plus growth, in our view,” analysts said. Among those initiatives are free two-day shipping on orders of $35 or more and same-day delivery through Shipt.

“While expensive, we think Target’s digital investments should help it stay differentiated in a competitive e-commerce environment,” analysts said.

UBS rates Target shares neutral with an $85 price target.

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– Quo Vadis President John Zolidis thinks Target can gain market share even if investors are “skeptical.” New private label brands, e-commerce offers, and better pricing are giving the company a boost.

“Our thesis is that Target can maintain this momentum in traffic and sales, thereby generating positive inflection margins and year-over-year percentage change in EBIT [earnings before interest and taxes],” Zolidis wrote. “Meanwhile consensus estimates are below the mid-point of the guidance range, reflecting investor resistance with the story and easing the path to upward revisions from here.”

-A recent proprietary Stifel consumer spending survey published last week found that 41% of consumers planned to shop at Target in the next month, up one point year-over-year. And 27% of consumers plan on shopping at Target at least once per month, also up one point over last year.

Analysts expect the company to benefit from the launch of Made by Design, a Target label for household essentials, and Heyday, the company’s first electronics label.

Stifel rates Target shares hold with an $85 price target.

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