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Finanzas: Target: A Critical Moment

Finanzas: Target: A Critical Moment
Mayo 16, 2017

Autor/Fuente: Seekingalpha 👤Periodista: María Luisa Ayala 🕔16.May 2017

 

Summary

  • Target reports earnings for the first time since disclosing details on the 600-store redesign plans.
  • 1Q results will not matter as much as the company’s ability to execute on the transformation that has barely started.
  • If Target succeeds at its new strategy, investors buying shares at currently levels might be very well compensated.
  • It’s turnaround time for Target (NYSE:TGT), as the company starts to address changing shopping behavior and increased competitive pressures. This week, Target reports earnings for the first time since disclosing details on the 600-store redesign plans (out of a total of 1,800) expected to cost the company $7 billion over the next three years.

Credit: New store design, from company’s press release

On the quarterly results, the Street is expecting revenues to come in at $15.6 billion, suggesting a YOY drop of 4% that would fall in line with last quarter’s decline. Consensus EPS of $0.91 is significantly lower than the $1.33 expected before Target announced its transformation plans, but sits near the mid-point of management’s guided range for 1Q17.

I expect a few of the same themes from last quarter to come up this time. Strong digital sales will likely help to offset (but only partially) a decline in same-store sales that management expects could reach mid-single digits. Margins should come in significantly below last year’s levels, as the 30% YOY drop in EPS seems to suggest. Much of the decline, however, should be associated with the company’s early investments and marketing activity (promo, store service and pricing) associated with the transformation efforts.

But in the end, I believe 1Q results will not matter as much as the company’s ability to execute on the vision for the transformation that has barely started. On that front, I expect the discussions during the earnings call to be at least as important as the information that the press release will disclose, as management provides more color on how the transition plan has been unfolding.

Sugerimos: http://www.america-retail.com/usa/usa-target-plans-to-test-a-next-day-home-delivery/

The company has committed to investing in “enhanced store service, the continued shift into digital, support to develop, launch and market new exclusive brands, [competitive pricing], and additional D&A from investments in existing stores”. Part of that investment should have already impacted 1Q17 numbers. I will be curious to see what measurable results those initiatives may have started to generate year-to-date, and whether there might be any deviation (to the upside or downside) from management’s expectations shared last quarter.

On the stock

Target is undergoing a period of change that naturally creates instability. The company is facing significant headwinds that, if the company is caught flat-footed, could severely handicap the retailer down the road. As a result, the stock has returned to trading near its 15-month low, at 13.8x forward earnings, even after EPS consensus estimates for 2017 pulled back by 32% in the past three months alone.

“[Consumers] would rather live it than own it, especially young people”, said CEO Brian Cornell during last quarter’s earnings call. Target is starting to shape-shift to adapt to what the company perceives to be the changing demands of its customers. Whether the retailer will succeed at its new strategy remains to be seen — and this week’s earnings discussions might start to answer the question. If it does, investors buying shares at currently levels might be very well compensated.

Note from the author: this article was written after an in-depth study of the offshore drilling industry that I did over the past few days. Premium subscribers of my SRG Portfolio service have been given access to all the back up data, in addition to a post in which I discuss the key takeaways in more detail. If you would like to know more about this subscription service, click here to take advantage of the 14-day free trial and get immediate access to all the premium material that I have published so far.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TGT over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

 

Fuente: Seekingalpha

 

 

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