Target Q1 Results Top Estimates; Now Sees FY EPS Above Midpoint Of View Range

Discount-store operator Target, Inc. (TGT) reported Wednesday higher net profit in its first quarter, while segment earnings and margins declined amid lower comparable sales. Adjusted earnings per share and sales, however, topped market estimates. Further, the company backed its fiscal 2017 forecast, adding that it will finish the year above the midpoint of its prior earnings guidance.

In pre-market activity on the NYSE, Target shares were gaining 7.66 percent to $58.70.

Brian Cornell, chairman and CEO of Target, said, “Target’s first quarter financial performance was better than our expectations, reflecting strong execution by our team as they delivered for our guests in a very choppy environment. After starting the quarter with very soft trends, we saw improvement later in the quarter, particularly in March.”

In the first quarter, net earnings increased 7.7 percent to $681 million from $632 million last year. Earnings per share climbed 17.1 percent to $1.23 from $1.05 a year ago, reflecting a 7.7 percent drop in share count.

Net earnings from continuing operations grew 10.4 percent to $677 million from $614 million last year. Earnings per share from continuing operations climbed 20 percent to $1.22 from $1.02 a year ago.

Adjusted earnings per share were $1.21, compared to $1.29 in 2016. On average, 24 analysts polled by Thomson Reuters expected earnings of $0.91 per share. Analysts’ estimates typically exclude special items.

Segment earnings before interest expense and income taxes or EBIT, Target’s measure of segment profit, were $1.18 billion, down 11 percent.

First-quarter EBITDA margin was 10.9 percent and EBIT margin was 7.4 percent, compared with last year’s 11.5 percent and 8.2 percent, respectively. Gross margin rate was 30.5 percent, compared with 30.9 percent in 2016, reflecting increased digital channel fulfillment costs.

Sales decreased 1.1 percent to $16.02 billion from $16.20 billion last year.

Analysts were looking for sales of $15.62 billion for the quarter.

The company noted that weak sales reflected a comparable sales decline of 1.3 percent driven by small declines in both traffic and basket size, partially offset by the contribution from new stores.

Comparable digital channel sales increased 22 percent, on top of 23 percent growth in first quarter 2016.

Looking ahead, for the second quarter, Target expects a low single digit decline in comparable sales, and reported and adjusted earnings per share from continuing operations of $0.95 to $1.15. Analysts expect earnings of $1 per share.

Further, for fiscal 2017, the company continues to expect a low single digit decline in comparable sales.

Target did not update its full year earnings forecast, but acknowledged that better-than-expected first quarter performance increases the probability that the Company will finish the year above the midpoint of its prior guidance.

For fiscal 2017, the company forecast reported and adjusted earnings from continuing operations of $3.80 to $4.20 per…

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