Target Shares Tumble After Q4 Earnings Miss
Rising e-commerce, promotional, pay wage and renovation costs ate into Target’s bottom line during the holiday season, pushing the retailer’s profit margin down to 26.2 percent—its lowest fourth quarter margin in at least 20 years.
The company’s earnings per share finished at $1.37 for the three-month period ending February 3, 2018. Analysts polled by Zacks Investment Research predicted earnings per share of $1.39.
Investors responded unfavorably, sending company shares down as much as 6 percent to $70.05 on Tuesday. Target shares had been on the rise over the last 12 months yet returned back to a valuation not seen since the start of 2018.
But it wasn’t all bad for the Minneapolis-based retailer in its fourth quarter. Same-store sales—a key retail metric measuring year-over-year sales growth at stores open a year or more—jumped 3.6 percent, marking a sharp improvement, particularly within the increasingly competitive retail industry. Notably, competing retailers also reported same-stores sales growth over the holidays, including Walmart (up 2.6 percent), Macy’s (1.3 percent) and Best Buy (9 percent).
Target racked up $22.8 billion in sales during its fourth quarter, a 10 percent increase over the $20.7 billion it reported a year ago. While its costs of sales also jumped by more than 10 percent, or $1.6 billion, over the same period, traffic levels at its stores swung upward. The company reported a 3.2 percent increase in in-store traffic, as well as a 29 percent uptick in online sales.
Altogether, sales from its website and other digital channels improved by roughly half-a-billion dollars and made up more than 8 percent, or about $1.9 billion, of Target’s overall revenue during the fourth quarter.
“Our fourth quarter results demonstrate the power of the significant investments we’ve made in our team and business throughout 2017,” said Brian Cornell, CEO of Target, in a statement.
On Monday, the company updated its multi-year, $7 billion turnaround plan with a note that it planned to complete 325 stores remodels in 2018, which included a $250 million investment to modernize 28 of its locations around the Twin Cities.
Target has said its remodel efforts have been worthwhile so far, resulting in a 2 to 4 percent sales growth at its revamped locations.
The company is projecting a similar-sized jump in its same-store sales in its fiscal 2018 year. Target is forecasting a low-single digit increase in same-store sales with its earnings per share falling between $5.15 and $5.45.
“While we have a lot left to accomplish,” said Cornell, “our progress in 2017 gives us confidence that we are making the right long-term investments to best position Target for profitable growth.”