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Things You Need to Know Before Target's (TGT) Q4 Earnings

Target CorporationTGT is scheduled to release fourth-quarter fiscal 2017 results on Mar 6. 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 10.2%. Moreover, the company has delivered positive earnings surprises in the preceding three quarters. Meanwhile, estimates have been stable ahead of the fourth quarter earnings release.

The Zacks Consensus Estimate for the fourth quarter is pegged at $1.39 down from $1.45 reported in the year-ago period. Analysts polled by Zacks expect revenues of $22,463 million, up from $20,690 million reported in the prior-year quarter. Following sturdy holiday season performance, Target raised view. It now envisions fourth-quarter earnings in the band of $1.30-$1.40 compared with the prior range of $1.05-$1.25. Further, Target expects comparable sales to increase approximately 3.4% during the final quarter.

What Will Drive Target's Results?

Target's initiatives such as the development of omni-channel capacities, diversification and localization of assortments along with emphasis on flexible format stores are encouraging. Additionally, the company intends to deploy resources to significantly develop online platform as well as store facilities to make shopping more convenient for customers.

Target Corporation Price, Consensus and EPS Surprise

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

Focusing on Private-Label Brands

Target has undertaken several strategic initiatives to boost performance. The company intends to deploy resources to significantly develop its online platform as well as store facilities to make shopping more convenient for customers. The company plans to expand merchandise assortments with special emphasis on Style, Baby, Kids, and Wellness categories that are performing well.

Management is focusing on key departments, such as Apparel, Beauty, Electronics and Food and Beverage. In the recent past, the company has unveiled some private label brands such as Cloud Island, Cat & Jack, A New Day, Goodfellow & Co., Project 62, JoyLab and others. Target had earlier informed that it plans to infuse $7 billion of capital over a period of three years to merge digital and physical shopping, open small format stores and fulfillment centers as well as revamp stores and bring in new merchandise.

Restock Program & Other Customer Friendly Endeavors

The retailer 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. The company also launched curbside pickup program. This program gives customers an option to get ordered items without leaving the comfort of their cars.

Further, in order to improve supply chain and expand delivery capabilities, the company acquired Grand Junction. To capitalize on digital sales last holiday season, Target strengthened relationship with Google by allowing customers nationwide to shop through Google Express, including voice-activated shopping. Target has also made a concerted effort on the front of same-day delivery services by acquiring internet-based grocery delivery service Shipt for $550 million.

Flexible Format Stores

Target continues to lay emphasis on developing flexible format stores to penetrate deep into urban areas. This type of stores generally has higher sales productivity. Management had earlier informed that Target is opening 32 small format stores in fiscal 2017 with plans to open 35 new outlets in fiscal 2018. The company plans to operate over 130 small-format outlets nationwide by the end of fiscal 2019. It remodeled 110 stores in fiscal 2017, including 37 in the third quarter.

Will Margins Remain Under Pressure?

Margin, an important financial metric that gives an indication about the company's health, has been declining. In both the first and second quarters of fiscal 2017, gross margin contracted 40 basis points to 30.5%. In the third quarter, gross margin contracted 10 basis points to 29.7% on account of pricing and promotions, and cost of digital fulfillment. The company had previously hinted that gross margin is likely to remain under pressure during the fourth quarter as well. Maintaining the same chronological order, operating margin shriveled 80 basis points, 90 basis points and 120 basis points to 7.4%, 6.8% and 5.2%, respectively.

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 #1 but an Earnings ESP of -2.26%. Consequently making surprise prediction difficult.

Stocks With Favorable Combination

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

Burlington Stores, Inc. BURL has an Earnings ESP of +4.08% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Ross Stores ROST has an Earnings ESP of +1.37% and a Zacks Rank #2.

Urban Outfitters URBN has an Earnings ESP of +0.85% 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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