Target Shares Decline as Retailer Misses Q3 Earnings

Target Corp. shares tumbled 7 percent in pre-market trading Tuesday after the retailer reported third-quarter 2018 earnings per share of $1.09. That fell short of Wall Street’s expectations of $1.12 per share, despite representing a 20.2 percent increase over the 90 cents posted in the 2017 quarter.

Revenue advanced 5.6 percent to $17.8 billion in the period ended Nov. 3, from $16.9 billion in the year-ago quarter, and net income shot up 30.2 percent to $622 million from $478 million.

Investors were concerned about expenses eroding profits with the gross margin rate falling to 28.7 percent compared with 29.6 percent in 2017. This was due to higher supply chain costs driven by growth in digital fulfillment costs and other expenses related to holiday-related inventory receipts compared with last year, partially offset by the benefit of merchant initiatives.

Same-store sales advanced 5.1 percent compared to an expected 5.2 percent.

As Target enters the important holiday season, the retailer’s digital sales rose 49 percent in the 2018 third quarter, which contributed 1.9 percentage points to its same-store sales growth. Transactions at stores saw a 5.3 percent increase, however, shoppers’ average ticket fell 0.2 percent.

For the fourth quarter, Target expects comparable-store sales growth of 5 percent, consistent with its year-to-date performance. For the full year, retailer reiterated its earlier forecast of GAAP EPS of $5.41 to $5.61 and adjusted EPS of $5.30 to $5.50. The 11-cent difference between expected full-year adjusted EPS and GAAP EPS is driven by discrete items already reported through third quarter 2018.

“We’ve made significant investments in our team heading into the holidays and they’re ready to serve our guests with a comprehensive suite of convenient delivery and pickup options, a wide range of new products and unique gift ideas and a strong emphasis on low prices and great value,” said Brian Cornell, chief executive officer of Target. “We plan to leverage our current momentum into 2019, when we’ll achieve greater scale across the full slate of our initiatives, creating efficiencies and cost-savings, and further strengthening our guest experience and positioning Target for profitable growth in the years ahead.”

Third-quarter operating income margin rate was 4.6 percent, compared with 5 percent in 2017. Third quarter SG&A expense rate was 22.1 percent in 2018, essentially flat to last year. Third quarter SG&A results reflected continued investments in associates, including hours, training and wages, which were offset by continued cost discipline across the enterprise.