Sunday, November 25, 2012

TGT Q3 2013

November 15, 2012:

Pre-market, Target Corporation (TGT) reported Q3 net earnings of $637 million, or $0.97 per diluted share (including a $0.15 gain from the pending sale of the company's receivables portfolio), representing a 17.6% increase over the prior-year period. Adjusted EPS, which omits expenses related to investment in the Canadian segment during the quarter, totaled $0.90, representing a 4.3% increase year-over-year. A comparable-store sales increase of 2.9% was in-line with management guidance. Comp growth continues to be driven by the company's 5% REDCard rewards and PFresh store remodel program.

In regard to our thesis, Target's 5% REDcard rewards and PFresh store remodel program continue to be effective sales- and profit drivers. Q3 2013 penetration of sales on REDCards was 14%, which is almost 3x the 5.5% experienced in the third quarter of 2012. As of the end of Q3, Target operated 1,130 stores that have been remodeled under the PFresh program. In regards to Target's expansion into Canada, the company currently has 45 stores under renovation and 1 distribution center operational. Management plans to have a second distribution center online in the near future. Stores in Canada are expected to open in April of 2013. 

Looking towards the holiday shopping season, 2 initiatives will differentiate Target from competitors and support sales and profit growth. The first is the company's partnership with Neiman Marcus. Under the partnership, starting December 1st, Target will offer 50 unique products created by 24 sought-after designers. In addition to the Target-Neiman Marcus partnership, Target has expanded its price matching program. Currently, customers who show a competitor's print ad for an identical product within 7 days of the purchase can take advantage of the company's price matching program. Under the expanded program, price matching has been extended to November 1st through December 24th, and includes prices offered by online competitors.  

     For Q4, management expects GAAP EPS of $1.45 - $1.55 and adjusted EPS of $1.64 - $1.74. Investors reacted favorably to Target's Q3 results, as shares opened +1.4% following the earnings announcement.

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