Are Target's (TGT) Strategies Enough to Lift Its Q1 Earnings?

Target CorporationTGT is scheduled to release first-quarter fiscal 2018 results on May 23. Well the obvious question that comes to mind is whether this operator of general merchandise stores will be able to deliver positive earnings surprise in the quarter to be reported.

In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 10.7%. However, it reported a negative earnings surprise of 1.4% in the preceding quarter. Meanwhile, estimates have been stable ahead of the first-quarter earnings release.

The Zacks Consensus Estimate for the first quarter is pegged at $1.38 up from $1.21 reported in the year-ago period. Analysts polled by Zacks expect revenues of $16,432 million, up from $16,017 million reported in the prior-year quarter.

Here Are the Deciding Factors

Omni-channel & Restock Program to Lift Sales

Target has chalked out strategies to adapt to the fast-changing retail landscape. The company is deploying resources to enhance omni-channel capacities, coming up with new brands, remodeling or refurbishing stores, and expanding same-day delivery options. Target has undertaken rationalization of supply chain with same-day delivery of in-store purchases for a flat fee along with technology and process improvements.

Retailers are ensuring a speedy delivery to customers. They are either acquiring or partnering with delivery service companies for same-day delivery to stay ahead in the race. In this respect, Target acquired Shipt to expand same-day delivery of more than 55,000 groceries, essentials, home, electronics, toys and other products.

The company has rolled out Target Restock program that allows customers to restock their shipping box with essential items online and get them delivered at door steps by the next business day for a nominal charge. Drive Up, an app-based service, is another initiative to expedite the shopping process. The service allows customers to place orders using the Target app and have them delivered to their cars.

All these strategic endeavors are likely to favorably impact the quarterly results. Management had earlier guided first-quarter fiscal 2018 comparable sales to be up low-single digit and projected earnings in the band of $1.25-$1.45.

Will Margins Remain Under Pressure?

Margin, an important financial metric that gives an indication about the company's health, has been declining. We note that the operating margin shriveled 80 basis points (bps), 90 bps, 120 bps and 140 bps to 7.4%, 6.8%, 5.2% and 5.1% during the first, second, third and fourth quarter of fiscal 2017, respectively. Management expects operating margin to contract roughly 60-80 bps in the first quarter. Target informed that increase in depreciation and amortization on account of its remodel program, rise in costs due to new fulfillment options, higher wages and incremental investments are the primary headwinds.

Target Corporation Price, Consensus and EPS Surprise

Target Corporation Price, Consensus and EPS Surprise | Target Corporation Quote

What Does the Zacks Model Suggest?

Our proven model does not conclusively show that Target is likely to beat earnings estimates this quarter. This is because a stock needs to have both - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Target has a Zacks Rank #3 but an Earnings ESP of -0.65%. Consequently, making surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post earnings beat.

Best Buy BBY has an Earnings ESP of +2.01% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Costco COST has an Earnings ESP of +1.39% and a Zacks Rank #3.

Kroger KR has an Earnings ESP of +3.94% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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