Target To Report Q4 Results; What Might Be In Store?

For some time now, many have been painting a doom-and-gloom scenario regarding traditional retailers that have been adapting strategies in light of continued e-commerce growth. There’s no denying that the sector has faced challenges, but now that a lot of these companies are a few years into turnarounds, restructuring, and other strategic initiatives, investors are starting to get a better idea of which companies are seeing some traction, and which ones still have work to do.

One of the next major retailers to report is Target Corporation TGT, scheduled to release quarterly earnings before market open on Tuesday, Mar. 6. Not only will analysts be looking at how the company’s turnaround efforts are progressing, they’ll also see how the company fared in the holiday season.

For Q4, TGT is expected to report adjusted earnings per share (EPS) of $1.39, down from $1.45 in the prior-year quarter, on revenue of $22.46 billion, according to third-party consensus analyst estimates from the Earnings Analysis tab on the thinkorswim® platform.

TGT already released holiday sales figures in early January, so some of the uncertainty around the report has already been removed. For the November/December period, TGT reported that comparable sales grew 3.4% year over year, better than management’s previous guidance in the range of 0% to 2%. Management attributed that to strong traffic growth as well as strength in digital sales, which TGT expects to grow by more than 25% for all of 2017.

As part of its turnaround efforts, digital sales have been a consistent focus for management. CFRA analysts said they “expect rapid growth of online and omni-channel sales” in fiscal 2018, although they cautioned that margins will likely be pressured by higher costs associated with online sales. TGT recently announced it had agreed to acquire Shipt, an online same-day delivery platform, for $550 million in cash. With that acquisition, TGT has said it plans to bring same-day delivery to half of its locations by early 2018, and roll it out in a majority of stores and in all major markets before the 2018 holiday season.

Beyond the company’s digital-sales initiatives, analysts are likely to be looking for more information on the company’s private-label efforts and store restructurings. TGT launched several private-label brands in 2017, and CEO Brian Cornell said the company plans to launch additional exclusive brands in 2018. At the same time, Cornell also said TGT plans to open approximately 30 small-format stores and triple the size of its store remodeling plans to more than 325 stores. 

TARGET RALLY SINCE LAST REPORT. When TGT last reported, the stock dropped about 9% as management gave weaker-than-expected guidance for the holiday quarter. The stock has since rallied quite a bit from a low of $54.04 and has been trading in the $70-range for most of 2018 so far. Chart source: thinkorswim^® from TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Target Options Trading Activity

The options market has priced in an expected share price move of 6% in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility is at the 82nd percentile as of this morning.

In short-term trading at the Mar. 9 weekly expiration, trading hasn’t been too heavy with expiration only a few days away, and activity has been heavier at the 74 strike price for both calls and puts. Further out at the Mar. 16 monthly expiration, trading has been heavier in the 75- and 77.5-strike calls while puts have been active at the 75 strike.

Trading was split pretty evenly between calls and puts overall during Friday’s session; the day ended with a put/call ratio of 0.932.

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.

Looking Ahead

Earnings season has pretty much come to an end, although there are still a few companies reporting here and there. One of the next bigger events on the horizon is the Fed’s upcoming March meeting on Mar. 20-21. It’s the first one with newly appointed Fed Chair Powell at the helm, and right now the there’s an 84.5% probability of a quarter-point rate hike, according to the CME FedWatch tool. For a look at what else is going on, make sure to check out today’s Market

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