Target Corp. (NYSE: TGT)
Target Corp. Earnings
No company ever wants to report a bad earnings report, particularly when that company is a publicly traded company that has to report those earnings out to the whole world. However, that is the situation that Target Corp. ($TGT) had to report this morning as it missed its earnings goal for the quarter and reported that it expects to have a weak year in general as retailers continue to struggle with the changing consumer behavior.
The raw numbers show a GAAP earnings per share of $1.46 in the fourth quarter of 2016 and $4.58 for the full year of 2016. However, that is down from $2.31 in the fourth quarter of 2015 and $5.25 for the full year of 2015. Revenues declined to $20.69 billion from $21.63 billion for the same period ending last year while analyst were looking for $20.70 billion. That means that the company is moving in the wrong direction. Companies always want to report expanding earnings. Even a small dip can make investors jittery, and this was much more than just a small drop, this was a sizable fall.
Looking at the daily chart above you will see that shares were hammered following their earnings results. Shares closed Monday at $66.91 and opened Tuesday at $57.41 marking a 14% drop in value. Shares haven’t traded at these levels since 2014 but we should see some support come in at the $56 and $52 levels while $60 and $64 will act as resistance.
Shares are well below their 200 and 50-day moving average that are currently sitting at $70.43 and $68.38 respectively. Look for shares to be more volatile over the coming days as investors and traders digest the earnings data and make adjustments to their portfolios.
“Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores,” said Brian Cornell, chairman and CEO of Target. “At our meeting with the financial community this morning, we will provide detail on the meaningful investments we’re making in our business and financial model which will position Target for long-term, sustainable growth in this new era in retail. We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years. In addition, we will invest in lower gross margins to ensure we are clearly and competitively priced every day. While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term.”
What could possibly be the cause of such a drop in earnings per share? Well, there are probably a number of factors, but most point to the theory that online retailers such as Amazon are eating into the earnings of Target and other big box retailers. More and more customers are becoming comfortable with the idea of purchasing items from online retailers. It took a while for the public to adjust to this, but once they did they took it on with gusto.
Amazon often makes things easier for those who are looking for some specific. A retail store may not have it in stock or may not carry the item at all. Many also look at the prices that are available online and decide that it is really the best option for them. They may have to wait a few extra days to get the item, but at least they get to save some money doing it.
It is not all about what the online retailers are doing to the bottom line of brick and mortar stores. There are other factors as well such as the fact that Target sold off its in-store pharmacies to CVS in 2015. This lowered the company’s overall sales. Still, even with this factored in the company still would have missed its earnings goals.
To the credit of Target, they have managed to grow their online platform and sales are increasing rapidly for the company online, but it is just not enough to make up for what they are losing on the physical stores. It is something that is troubling the retailer, but something that they are attempting to adapt to. After all, if that is the way that the world is moving, then Target wants to be a part of that movement.
Investors are definitely concerned about the developments that they saw today. They treated the stock accordingly. In early trading on this day the stock was down 13%. That brings the total loss to 20% for the year for Target stock.