Target’s Stock Plunges After Disappointing Q4 Results
Target (NYSE: TGT) posted disappointing fourth quarter results, with both revenues and EPS missing market expectations. The company earlier reported a 5% decline in sales during the holiday season (November and December) and its impact was visible on the company’s top line, which declined 4.3% over the prior year period to $20.7 billion and missed market expectations by $50 million. The decline in revenues was attributed to a decline in comparable sales, coupled with the sale of the pharmacy business to CVS, partially offset by growth in comparable digital channel sales. The retailer’s gross margin was 26.9% compared to 27.8% in the prior year. Target posted adjusted earnings of $1.45 per share, which was at the lower end of its own guidance and 6 cents less than analyst consensus expectations for the last quarter. The poor results had a significant impact on the company’s stock price, which declined 13% following the earnings release and closed at a 52-week low.
For the full year, the company reported revenues of $69.5 billion, almost 6% lower than the prior year, and adjusted EPS of $5.01, a year-on-year increase of 6.7%.
Target’s comparable sales saw a disappointing 1.5% y-o-y decline in the quarter. The company continues to face a number of issues, due to which it is struggling with slow traffic. The retail sector as a whole is in midst of widespread discounting and faces slow GDP growth. Consumers have also been spending more on online purchases, which is having a widespread impact on brick-and-mortar retailers. This trend was visible for Target, as its comparable digital sales increased 34% over the prior year quarter. However, digital platform sales still constitute a minuscule portion (6.8%) of the company’s overall sales.
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In order to adapt to the changing industry dynamics, Target intends to take a host of measures in the next two years. The company plans to increase its online presence, increase the number of stores and launch 12 new brands. The company is hopeful that these changes will help drive growth in the long term.
Future Outlook
Target released its guidance for the current quarter and full year 2017. The company expects the decline in comparable sales to continue this year, with first quarter comparable sales forecast to decline in the low-to-mid single digits, while guiding for a full-year comparable sales decline in the low-single digits. In terms of adjusted earnings per share, the company expects to generate $0.80 to $1.00 per share in the current quarter, with the higher end of the guidance representing a 22% decline on a y-o-y basis, and $3.80 to $4.20 per share for the full year 2017, with the higher end of the guidance representing a 16% decline. The company expects the softness in comparable sales and its transformation plans to continue to impact its results in the coming quarters.
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