Target Corporation TGTis scheduled to release first-quarter fiscal 2018 results on May 23. 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.
The Zacks Consensus Estimate for the first quarter is pegged at $1.38 up from $1.21 reported in the year-ago period. Analysts polled by Zacks expect revenues of $16,432 million, up from $16,017 million reported in the prior-year quarter.
Here Are the Deciding Factors
Omni-channel & Restock Program to Lift Sales
Target has chalked out strategies to adapt to the fast-changing retail landscape. The company is deploying resources to enhance omni-channel capacities, coming up with new brands, remodeling or refurbishing stores, and expanding same-day delivery options. Target has undertaken rationalization of supply chain with same-day delivery of in-store purchases for a flat fee along with technology and process improvements.
Retailers are ensuring a speedy delivery to customers. They are either acquiring or partnering with delivery service companies for same-day delivery to stay ahead in the race. In this respect, Target acquired Shipt to expand same-day delivery of more than 55,000 groceries, essentials, home, electronics, toys and other products.
The company has 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. Drive Up, an app-based service, is another initiative to expedite the shopping process. The service allows customers to place orders using the Target app and have them delivered to their cars.
All these strategic endeavors are likely to favorably impact the quarterly results. Management had earlier guided first-quarter fiscal 2018 comparable sales to be up low-single digit and projected earnings in the band of $1.25-$1.45.
Will Margins Remain Under Pressure?
Margin, an important financial metric that gives an indication about the company’s health, has been declining. We note that the operating margin shriveled 80 basis points (bps), 90 bps, 120 bps and 140 bps to 7.4%, 6.8%, 5.2% and 5.1% during the first, second, third and fourth quarter of fiscal 2017, respectively. Management expects operating margin to contract roughly 60-80 bps in the first quarter. Target informed that increase in depreciation and amortization on account of its remodel program, rise in costs due to new fulfillment options, higher wages and incremental investments are the primary headwinds.