Target Earnings: What's Coming?

In a report published Thursday, MKM Partners analysts maintained a Neutral rating on Target Corporation (NYSE: TGT), with a price target of $80, ahead of the company's 1Q15 results.The analysts expect Target to report solid quarterly results driven by a good response to its Lilly Pulitzer limited-time offering in mid-April. The company may beat its EPS guidance of $1.01 with EBIT margin of 6.9 percent, up 50bps from 1Q14, but down 60bps from 1Q13."For FY15, we expect 2% comps (vs. 1.5%-2.5% guidance), 30 bps of margin expansion/recovery and EPS of $4.54 vs. guidance of $4.45-$4.65. Strong e-commerce growth is expected to add about a half point to comps. We look for only slight square footage growth (only six general merchandise stores planned)," the analysts wrote.The company's future performance may, however, be impacted by structural changes in spending. "Consumers are spending away from traditional bricks-and-mortar retail…When they do shop bricks-and-mortar, they are leaning more toward small, convenient formats. This is likely to be a continued headwind to Target's core U.S. business," the analysts mentioned.The company's renewed focus on merchandising and development of its domestic store business is expected to yield positive results. "We also expect a gradual improvement in performance in food (20% of sales), driven by new leadership (veteran grocer Anne Dament joined in April) and a more differentiated mix (more organic, more premium, healthier)," the report by MKM Partners added.