Upcoming Earnings: Target To Report Q1 Results Wednesday

Investors will likely get an update on Target Corporation TGT progress in what the company has called a “transition year” when it reports first-quarter earnings before market open on Wednesday, May 23.

In early 2017, TGT executives laid out their strategy to address customers’ evolving shopping habits. The plan largely centered around improving its digital experience, launching more exclusive brands, and remodeling existing stores and opening small-format locations.

Even though the company’s remodeling efforts are still in their early stages, there have been some analysts that have noted the company’s progress and think it has improved customer’s overall shopping experience, although there’s still uncertainty if it has started to impact the business in a meaningful way.

In Q4 2017, TGT’s comparable sales grew 3.6 percent year over year, and management said it expects comp sales growth in the low-single digits in 2018. On average, analysts are forecasting 2.8 percent year-over-year comp sales growth for Q1 2018.

Lately, the company has taken several steps aimed at improving its supply chain and digital capabilities. After acquiring same-day delivery company Shipt for $550 million in December 2017, TGT said it would roll out same-day delivery to half of its locations in early 2018 and in a majority of its stores by the 2018 holiday season.

In addition to offering same-day delivery in more markets, TGT has taken other steps to expand its fulfillment options. When it last reported, the company said it plans to increase the number of stores that offer Drive Up, which allows customers to have orders brought out to their car when they pull up to the store, from 50 to about 1,000 by the end of 2018.

Several analysts have been optimistic these steps will help bolster the company’s e-commerce growth. TGT’s digital channel sales were up 29 percent year over year in Q4 2017. At the same time, however, management has cautioned profit margins will be pressured by the rollout of new fulfillment options. 

Earnings and Revenue

TGT is expected to report adjusted EPS of $1.38, up from $1.21 in the prior-year quarter, on revenue of $16.57 billion, according to third-party consensus analyst estimates. Revenue is projected to grow 3.4 percent year over year.

When it last reported, TGT beat revenue estimates, but it missed on earnings and management’s earnings guidance was weaker than what analysts were expecting. Management said it expects adjusted EPS of $1.25 to $1.45 in Q1 and $5.15 to $5.45 for the full year.

Trading Activity

Around the upcoming earnings release, the options market has priced in about a 4.3 percent stock price move in either direction according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 39^th percentile as of this morning. 

TARGET 2018 STOCK CHART. TGT bumped up against the mid-to-high $78 level twice early on in the year. After the second time hitting it at the end of February, the stock pulled back and had been trading in a narrower range from early March to early May. The stock has been rising leading up to the report and has been trading closer to its 2018 high of $78.70. Chart source: thinkorswim^® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

In short-term trading at the May 25 weekly expiration, call activity has been concentrated at the 77.5 and 78 strike prices, while put activity has been concentrated at the 75 strike. Looking at the June 15 monthly expiration, recent trading has been heavier at the 77.5 and 80 strikes on the call side, and again at the 75 strike on the put side.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

What’s Coming Up

Earnings season continues to wind down, with mostly retail and a few smaller tech companies reporting this week.

Consider keeping an eye on the FOMC minutes from the Fed’s May 1-2 meeting, scheduled for release at 2:00PM on Wednesday, the same day as TGT’s report.

The next Fed meeting is coming up on June 12-13. The futures market is currently predicting a 100 percent chance of a rate hike at that meeting, and about a 50-50 chance of four rate hikes this year. If you have time, check out today’s market update for a look at what else is going on across markets.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.