17 Aug Target Beats Fiscal Q2 Estimates; Ups Outlook
Target Corporation reported that second quarter sales increased 1.6 percent to $16.4 billion from $16.2 billion in Q2 last year, reflecting a 1.3 percent comparable sales increase combined with the benefit from sales in non-mature stores. Comparable digital channel sales grew 32 percent and contributed 1.1 percentage points to comparable sales growth.
Segment earnings before interest expense and income taxes (EBIT), which is Target’s measure of segment profit, were $1.11 billion in second quarter 2017, a decrease of 10.3 percent from $1.24 billion in second quarter 2016.
Second quarter EBIT margin rate was 6.8 percent, compared with 7.7 percent in 2016. Second quarter gross margin rate was 30.5 percent, compared with 30.9 percent in 2016, reflecting increased digital fulfillment costs and the company’s efforts to improve pricing and promotions. Second quarter SG&A expense rate was 20.6 percent in 2017, compared with 20.1 percent in 2016, driven by higher compensation costs, primarily due to increased bonus expense, and impairment losses resulting from planned or completed store closures and supply chain changes partially offset by the benefit of the company’s cost-saving efforts.
GAAP earnings per share (EPS) from continuing operations came in at $1.22, an increase of 14.2 percent from second quarter 2016. Second quarter adjusted earnings per share from continuing operations (Adjusted EPS) were $1.23, an increase of 0.1 percent from second quarter 2016.
“I want to thank the team for their strong execution in the second quarter, which drove broad-based improvement in Target’s performance. In particular, we are pleased that second-quarter traffic increased more than 2 percent, reflecting growth in both our store and digital channels,” said Brian Cornell, chairman and CEO of Target. “We continue to focus on our long-term strategy, as we work to transform every part of our business and build an even better Target that will thrive in this new era in retail. While our recent results are encouraging, we will continue to plan prudently as we invest in building our brands, our digital channel, the value we provide our guests and elevating service levels in our stores.”
Third Quarter And Fiscal 2017 Guidance
Target expects that both third quarter and fourth quarter 2017 comparable sales growth will be within the range the company experienced in the first and second quarters of 2017. The company expects its full-year 2017 comparable sales growth will be in a range around flat, plus or minus 1 percent.
For third quarter 2017, the company expects both GAAP EPS from continuing operations and Adjusted EPS of 75 cents to 95 cents. For full-year 2017, the company now expects GAAP EPS from continuing operations of $4.35 to $4.55, and Adjusted EPS of $4.34 to $4.54, compared with prior guidance of $3.80 to $4.20. The 1 cent difference between the full-year guidance ranges for GAAP EPS from continuing operations and Adjusted EPS is due to the income tax matters excluded from Adjusted EPS in the first half of the year.
Third quarter and full-year 2017 GAAP EPS from continuing operations may include the impact of additional discrete items which will be excluded in calculating Adjusted EPS. The only additional discrete item of which the company is aware is a possible net benefit from income tax matters not related to current period operations in an amount that cannot presently be estimated.
Interest Expense And Taxes From Continuing Operations
The company’s second quarter 2017 net interest expense was $135 million, compared with $307 million last year. The decline was primarily driven by a $161 million charge related to the early retirement of debt in second quarter 2016, combined with the benefit of lower debt balances in second quarter 2017.
Second quarter 2017 effective income tax rate from continuing operations was 31.4 percent, compared with 33.6 percent last year. The decrease was primarily due to the net tax effect of the company’s global sourcing operations.
Second quarter net earnings from discontinued operations were $1 million, compared with net earnings of $55 million last year. Second quarter 2016 net earnings from discontinued operations primarily reflected tax benefits from investment losses in Canada recognized upon court approval of Target Canada’s liquidation plan.