A Closer Look At Target’s Q4 Earnings And Fiscal 2018 Outlook

by Trefis Team
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Target (NYSE: TGT) announced strong fourth quarter earnings on March 6, but the stock still fell as its results were slightly below expectations. Below we discuss some key takeaways from Target’s earnings, as well as our fiscal 2018 outlook using our interactive platform.

In Q4, Target’s revenue increased 10% year-over-year (y-o-y) to $22.7 billion, primarily due to a 3.6% increase in comparable sales, which was ahead of consensus estimates. The fact that the company has been able to grow its comparable sales, despite significant competitive pressure, suggests that its initiatives are resonating well with customers. Target’s gross margin was 26.2%, down 40 basis points, largely due to increased fulfillment costs resulting from growth in digital sales. On the cost side, selling and general administrative (SG&A) expenses grew 17% y-o-y, due to an increase in compensation expense, reflecting investments in store hours, wage rates and team member incentives.

On the Q4 earnings call, Target announced its plans to raise its minimum hourly wage to $12 in 2018, part of a previously announced commitment to raising it to $15 by the end of 2020. It also announced that it will be updating more than 300 stores around the country and making sizable investments in key cities.

Digital Sales, Traffic Boost Comparable Sales 

Among the components of the reported 3.6% comparable sales in Q3, traffic grew 3.2% y-o-y and the average transaction amount increased 0.4% y-o-y. The company’s store and digital comparable sales grew 1.8% y-o-y. Notably, Target’s digital sales grew 29% y-o-y in the fourth quarter, and accounted for 8.2% of its total sales.

Future Outlook

In the first quarter, the company expects its EPS (both GAAP from continuing operations and adjusted) to be in the range of $1.25 to $1.45. The company also expects a low-single-digit increase in comparable sales in this quarter. For full year 2018, Target expects both GAAP EPS from continuing operations and adjusted EPS of $5.15 to $5.45.

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