Target Beats The Street As It Attempts A Turnaround

After a few quarters that would charitably be described as rough sailing, the team at Target had some positive signs of progress to announce with its latest earnings reports.

Sales during Q2 managed to come in ahead of analyst estimates, and the retailer boosted its earnings forecast for the rest of 2017.  Investors liked the sound of that and sent Target’s share up 4.9 percent on the news.

Customer traffic was also on the upswing, which was good news as Target has spent the last few quarter losing ground in that area.  The success in the latest round of results is largely attributed to Target’s $7-billion turnaround plan (first introduced to the world in February of this year) that came with capital improvements for stores and leveled up digital progress to help it keep its footing in a rapidly shifting competitive arena.

“It is encouraging to see some progress against their turnaround plan and that they were finally able to generate some positive traffic,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence. “They took a very conservative approach to second-quarter guidance, so it isn’t a huge surprise that they were able to beat those expectations.”

Same-store sales were up 1.3 percent during Q2, pushed largely by a 32 percent increase in online revenue and a 2.1 percent gain in customer traffic. Those are big numbers for Target. In fact, those are the best results Target has put in up two years. Analysts had been predicting same-store sales growth of just 0.7 percent. Earnings estimates have been revised up to $4.34 to $4.54 a share, excluding some items. The midpoint of that range is ahead of the $4.41 that analysts have estimated.

As for what is next, Target’s improvement path carries ahead, with plans to remodel an additional 300 stores (up from the original 250 planned) and to expand the Target Restock program,  which offers next-day delivery of thousands of household essentials to several U.S. cities.

It also plans to broaden a same-day delivery service outside of  New York City.

“Target is not out of the woods yet,” Brandon Fletcher, an analyst at Sanford C. Bernstein, said in a note, but “this quarter is a definite step in the right direction.”

The question now is how will Walmart’s earnings look when they hit the wires tomorrow?