Wednesday, May 16:
Pre-market, Target Corporation (TGT) reported Q1 net earnings of $697 million, or $1.04 per diluted share, representing a 5.0% increase over the prior-year period and a $0.03 surprise against a $1.01 consensus estimate. Adjusted EPS, which omits expenses related to investment in the Canadian segment during the quarter, totaled $1.11, representing a 11.5% increase year-over-year.
A comparable-store sales increase of 5.3% was driven by warmer-than-normal weather coupled with a positive response by consumers to TGT's spring product assortment. Also during Q1, operating margin expanded by 50 bps (7.3%) and SG&A expense as a percentage of sales decreased by 50 bps (19.9%).
In regard to our thesis, TGT continued to develop its position within Canadian markets during Q1, as expenses related to IT and distribution infrastructure development contributed approximately $(0.08) to quarterly EPS. In Q2, Zellers will vacate several locations slated to serve as the first set of Canadian Target stores. Management expects to have 125 to 135 of these stores opened by 2014.
For Q2, management expects GAAP EPS of $0.94 - $1.04 and adjusted EPS of $1.04 - $1.14. Guidance for FY2012 was raised by $0.05, to $4.10 - $4.30 for unadjusted EPS and $4.60 - 4.80 for adjusted EPS.
The market reacted favorably to TGT's Q1 results, as shares were +3.3% following the earnings announcement.