Target Q2 earnings tops estimates; $15bn buyback plan

Target Corporation (NYSE: TGT) reported its Q2 earnings on Wednesday before the market opened. 

Target said that second quarter comparable sales rose 8.9%, fuelled by a 12.7% increase in the number of transactions. The average transaction amount fell 3.4% after rising 18.8% last year as consumers stocked up on essentials at the height of the pandemic.

  • Net Sales: $25.16 billion vs. $24.84 billion
  • Comparable Sales: +8.9% vs. +8.2% (Walmart U.S. 2Q21: +5.2%)
  • Gross Profit Margin: 30.4% vs. 30.5%
  • Operating Margin: 9.8% vs. 9.1%
  • Adjusted Diluted EPS: $3.64 vs. $3.40 (consensus range: $3.11 to $4.10)
Key Highlights:
  • Second quarter comparable sales grew 8.9 percent, on top of record growth of 24.3 percent last year.
    • Comparable sales growth was driven entirely by traffic.
    • Store comparable sales increased 8.7 percent, on top of 10.9 percent growth last year. 
    • Digital comparable sales grew 10 percent, following growth of 195 percent last year. 
    • Digital sales continue to be led by same-day services (Order Pickup, Drive Up and Shipt), which grew nearly 55 percent this year, on top of more than 270 percent last year.
    • More than 95 percent of Target’s second quarter sales were fulfilled by its stores.
  • All five core merchandise categories delivered positive comparable sales, on top of last year’s historic sales performance.
  • Second quarter GAAP EPS of $3.65 was 8.9 percent higher than last year, and Adjusted EPS of $3.64 was 7.9 percent higher than last year. Second quarter GAAP and Adjusted EPS have doubled since Q2 2019.
  • Target’s Board of Directors has approved a new, $15 billion share repurchase program.

Here’s what analysts expect, in line with estimates compiled by Zacks   

Earnings: $3.40 per share, estimated  
Revenue: $24.84 billion, estimated  

Earnings History  

The Minneapolis-based retailer witnessed robust growth in sales and profitability in the first quarter. Over the last four quarters, the company has easily beaten analysts EPS estimates. 

For the first quarter, Target reported GAAP earnings per share (EPS) of $4.17, an increase of 643.2 % versus last year’s $0.56. The company gained more than $1 billion in market share, on top of a $1 billion share gain in the first quarter of 2020. First-quarter Adjusted EPS1 was $3.69, up 525.0 % than last year. While store comparable sales increased 18%, comparable digital sales rose by a whopping 50 %. The company paid dividends of $340 million against $332 million last year, indicating a 3% increase in the dividend per share.  

During the fourth quarter of 2020, the company’s EPS established an all-time high with GAAP EPS of $2.73 and Adjusted EPS of $2.67. Its stores fulfilled more than 95 % of Target’s fourth-quarter sales. Operating income fetched $1.8 billion, up 53.2 % from $1.2 billion in 2019. 

Target’s total sales in 2020 reached $92,400 million with total revenue of $ 93,561 million. The company reported net earnings of $ 4,368 million versus $ 3281 million in 2019. The net EPS increased from $6.42 in 2019 to $ 8.72. In its 2020 annual report, Target Corporation said,” Our same-day services, Order Pickup, Drive Up and Shipt, grew 235% in 2020, led by more than 600% growth in Drive Up—as our guests developed new routines and connections to Target that will endure long after the pandemic,”.  

In the face of uncertainty, the company has withdrawn its sales and EPS guidance for fiscal 2021 and beyond. Meanwhile, Wall Street analysts predict the company to post earnings per share of $12.40 for the fiscal year. On average, they peg the annual revenue at $101.68 billion, compared to $ 93.56 billion last year. 

Company profile 

 Target Corporation is a general merchandise retailer with stores in all 50 US states and the District of Columbia. It is the eighth-largest retailer in the United States with 350,000+ team members and 1914 stores in the US.  Target is headquartered in Minneapolis, Minnesota. The first Target discount store opened in Roseville, Minnesota, on May 1, 1962. 

Plans ahead  

Target launched its brand-new line of pet food, ‘Kindfull’ on August 15. The brand includes many wet and dry food, treats, and dry toppers for cats and dogs. More than half of the 50+ items are under $10, and more than 40% of Kindfull items are in recyclable packaging. 

“Kindfull also joins Boots & Barkley, Target’s owned brand apparel and accessory line for pets, plus seasonal owned brand pet gear and accessories from Sun Squad, Hyde & EEK! Boutique and Wondershop,” the company press release states.     

Target has also announced a partnership with Ulta Beauty, a beauty store brand. Ulta beauty products will debut in more than 100 Target stores and on Target.com, with plans to reach a total of 800 locations in the years to come.  

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