Friday, August 17, 2012

August 15, 2012 - TGT Q2

     Pre-market, Target Corporation (TGT) reported Q2 net earnings of $704 million, or $1.06 per diluted share, representing a 3.4% increase over the prior-year period and a $0.05 surprise against a $1.01 consensus estimate. Adjusted EPS, which omits expenses related to investment in the Canadian segment during the quarter, totaled $1.12, representing a 4.6% increase year-over-year.
Management attributes a Q2 U.S. Retail segment comparable-store sales increase of 3.1% to two main initiatives designed to boost sales, customer loyalty, and store traffic: the store remodel program and 5% REDcard Rewards. During Q2, operating margin was flat (7.2%) and SG&A expense as a percentage of sales decreased by 20 bps (21.1%).

     In regard to our thesis, Target's store remodel program and REDcard Rewards have proven to be effective sales- and profit drivers, as the Company has experienced 11 consecutive quarters of comparable-store sales increases in its U.S. Retail segment. Target opened 5 net stores with an expanded food assortment in Q2, and management expects to have updated over 1,100 of its general merchandise stores by year-end. During July, three CityTarget stores were opened in Seattle, Los Angeles, and Chicago, and the initial reaction from customers in these cities has been positive. In regards to TGT's expansion into Canada, the Company has already begun converting 7 former Zellers stores, and expects to begin renovating 38 additional locations in Q3. At this rate, management believes the Company is on schedule to begin opening Target stores in Canada in spring of 2013.

     For Q3, management expects GAAP EPS of $0.69 - $0.79 and adjusted EPS of $0.83 - $0.93. Guidance for FY2012 guidance was raised to $4.20 - $4.40 for unadjusted EPS and $4.65 - 4.85 for adjusted EPS.The market reacted favorably to TGT's Q2 results, as shares were +1.9% following the earnings announcement.

No comments: