Fly Intel: What to watch in Target's earnings report

Target (TGT) is scheduled to report results of its third fiscal quarter before the market open on Tuesday, November 20, with a conference call scheduled for 8:00 am EDT. What to watch for: 1. COMPETITION WITH ONLINE RETAILERS: Retailers like Target have been hurt by the trend toward online shopping on sites like Amazon (AMZN) rather than at brick-and-mortar stores. Last December, Target acquired same-day delivery platform Shipt last December, stepping up its challenge to Walmart (WMT) and Amazon. Among other locations, Target and Shipt recently announced plans to start same-day delivery of over 55,000 groceries and other products to Pennsylvania and Maryland residents. In September, The Wall Street Journal said Amazon Prime has caused a competition among larger retailers and forced smaller retailers to follow suit. Despite having different prerequisites to be eligible for free two-day shipping, vendors like Target and Walmart now have its own version of the convenience. In October, Target said it would offer same-day delivery and drive up service coast to coast and said it would also offer free 2-day shipping to all guests with no minimum purchase and no membership. Amazon, which currently has four "AmazonGo" stores and is experimenting with the direction for the concept, is also considering a plan to open as many as 3,000 of the cashierless stores in the next few years, according to Bloomberg. KeyBanc analyst Edward Yruma said Target's investments and improved execution are driving stronger comps that he thinks are sustainable in the current environment. Rather than viewing Target as a participant in the Amazon vs. Walmart battle, Yruma thinks Target's unique mix of consumables and high-margin apparel/home decor leave it well-positioned to take share from at-risk retailers. 2. GUIDANCE: In August, Target forecast Q3 EPS of $1.00-$1.20, against analysts' consensus at the time of $1.08, forecasting comp sales growth for both Q3 and the second half of the year in line with the 4.8% growth delivered in 1H. For FY18, Target raised its EPS view to $5.30-$5.50 from $5.15-$5.45, against estimates at the time of $5.28. Buckingham analyst Bob Summers said he expects SSS strength to continue at least for the next few quarters, seeing 4.5% in Q3 and Q4, conservatively. Summers also sees Target benefiting from strong holiday spending and the recent bankruptcy at Toys-R-Us. Baird analyst Peter Benedict predicted a 5.1% increase in Q3 comps and said the company's investments in stores, brands, service, and fulfillment should continue to scale, helping Target capture displaced baby/toys market share. 3. STORE REMODELS, OTHER INITIATIVES: Target is expanding its plans to remodel supercenters and open smaller stores in cities. In August, Target said its drive-up service had expanded to 800 stores and said it hoped to have up to 1,000 by the holiday season. In October, the company announced the introduction of Smartly, a new lower-priced owned brand comprised of more than 70 items, such as hand soap, paper plates, household cleaners and razors, with most items less than $2.00.

TGT

Target

$78.22

-1.45 (-1.82%)

AMZN

Amazon.com

$1,541.22

-52.37 (-3.29%)

WMT

Walmart

$97.07

-0.63 (-0.64%)