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Earnings: Analysts, TGT Execs Say Tough Times May Be Ahead

November 15, 2016
Target stock market review for retail traders.

Target (TGT) has its Q3 earnings announcement and call scheduled for early Wednesday morning. There may be  a cloud over it as in Q2 company executives indicated to investors that the discount giant was facing a tough consumer environment, hurt partially by a consumer shift in purchasing habits.

Same-store sales, which the industry uses to measure year-over-year growth, had fallen 1.1% in Q2 2016 from the previous year, the first time in more than two years that sales at stores open longer than a year had not accelerated. TGT said at the time that a slowdown in customer traffic was expected to continue throughout the remainder of the year, with alike-store sales falling in a range of flat to down as much as 2% for the fiscal year.

Meanwhile, its efforts to step up traffic and sales in the grocery aisles—a key growth initiative in the last two years—were stalling, the company said then. And earlier this month, the company confirmed the unexpected departure of its grocery chief, Anne Dament, who is leaving the company Nov. 18 after only 18 months on the job, according to the published reports. The company has not elaborated on Dament’s departure, which came after TGT blamed at least part of its pullback in Q2 sales on weak grocery performance.

TGT also pared its profit forecasts for the full year and Q3 then. At the time, analysts reporting to Thomson Reuters were projecting Q3 earnings of $0.95 a share. That estimate now stands at $0.83 a share, down nearly 3.5% from the year-ago income of $0.86 a share.  

Revenue is also expected to slide, according to Thomson Reuters polls, to $16.3 billion, off 7.4% from $17.6 billion a year ago.

“Although we are planning for a challenging environment in the back half of the year, we believe we have the right strategy to restore traffic and sales growth over time,” Chief Executive Brian Cornell said in the Q2 press release.

Analysts say they will be looking for more guidance into sales expectations for the holidays, the most important shopping season of the year for most retailers. TGT has already announced Black Friday deals and said recently that it will raise its overall TV ad spend during the holidays to focus primarily on Hispanic shoppers through Spanish-language TV ads.

Short-term options traders have priced in a potential share price move of 4.5% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.

Buyers of options have been active at the Nov 75-strike calls and at the 69-strike puts. The implied volatility is right in the middle at the 50th percentile. (Please remember past performance is no guarantee of future results.)

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. 

TGT, 12m, 2015-16


TGT shares have coasted higher in recent sessions amid a wider market rally, but are off more than 14% from a 52-week high reached in early May. Shares are trading about 5.3% above their 50-day moving average. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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