Friday, May 24, 2013

Target Reports Disappointing First Quarter

Target Corporation released its first quarter earnings May 22nd which missed expectations as a result of soft sales in seasonal and weather-related categories.  Target had first quarter revenues of $16.71 billion, consensus was at $16.78 billion. Net earnings fell 28.5% to $498 million, with adjusted GAAP earnings per share, excluding losses to early debt retirement of $0.41 and gain from sale of their credit card business, at $0.82, down 5% from last year’s outstanding performance. Earnings came in short of consensus estimates of $0.85 per share. Targets gross margins increased 50 basis points to 30.7%, from 30.2% in the same period last year, due to changed vendor agreements and the company’s growth strategies.

Target also opened its first 24 Canadian stores in this first quarter and plans to open 124 stores in Canada by the end of its fiscal year. Target’s mobile traffic and sales continue to grow at a triple-digit pace, with mobile traffic representing more than 30% of our digital traffic in the first quarter.  During the earnings call Targets CEO and chairman, Gregg Steinhafel stated, “While we are disappointing in our first quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels and CityTarget, that will drive Target's long-term growth." For the second quarter the company expects adjusted EPS of $1.09 to $1.19 and full-year adjusted earnings are expected to come in between $4.70 and $4.90 per share, a 15 cent reduction from Target's previous guidance.

Factoring in a 4% fall in Wednesday's trading session, attributed to both an extremely bearish day in the market and a bad quarter release, the market values Target at $44.0 billion. This values the company at merely 0.6 times annual revenues and 15 times last year's earnings. Target currently pays a quarterly dividend of $0.36 per share, for an annual dividend yield of 2.1%. One poor and expected quarter should not be of concern to us, Target Corporation has seen steady long-term growth in the past and I expect it to continue on this path in the future.  

- Kristen Pfaffe

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