Earnings results from Target (TGT) will be released tomorrow before the open at ~7am ET followed by conference call at 10:30am ET. 
 

Current  consensus estimates are for Q1 EPS of $1.19 on sales -3.2% to $16.6 bln and FY17 EPS $5.16 on sales -2.5% to $72.0 bln.

Full year guidance expected next week as they are hosting Target Financial Community Meeting on March 2).

TGT results follow earnings from big box peer Wal-Mart (WMT) and precedes Costco (COST) - scheduled to report March 2 after the close. ETFs: Retail HOLDRS Trust (RTH) -- TGT ~5%, Consumer Dis Spdr (XLY) 2%, SPDR Retail (XRT) less than 2%.

Key areas of interest:

• Q4 results are in-line with previously guided EPS range of $1.48-1.58 (current consensus is $1.54 on sales -0.5% to $21.6 bln).

• Guidance: The company will issue Q1 EPS guidance in the earnings press release and comps guidance during the call

Comparable Store Sales  

TGT guided for Q4 comps of 1-2% vs +1.5% estimate with digital growth 20%. Q3 comparable sales were +1.9% (near the high end of guidance) and driven primarily by traffic (+1.4% in Q3). Q3 digital sales +20% (well below co's expectation of 30% growth) contributing about 40 bps to comp sales increase. Q3 apparel comp sales grew just under 3% vs nearly 5% in Q2. This slowdown was correlated with warm weather in September. SG&A expenses were solid and in line with expectations. Comps guidance: Co typically discusses any forward looking comps expectations during the conference call.

• Margins: Q3 gross margin rate contracted 10 bps to 29.4% (short of co's expectations) and Q3 EBITDA and EBIT margin rates were both ~20 bps higher (consistent with guidance) . Q4 Margin guidance -- gross margin ‘moderate decline' from 28.5% year ago and EBITDA margin rate flat to down slightly from 9.8% last year.

TECHNICAL

BIAS: BULLISH

UPDATE

Target misses by $0.02, reports revs in-line; guides Q1 EPS in-line; guides FY17 EPS above consensus  (73.99)

• Reports Q4 (Jan) earnings of $1.52 per share, $0.02 worse than the Capital IQ Consensus of $1.54; revenues fell 0.6% year/year to $21.63 bln vs the $21.65 bln Capital IQ Consensus. 

• Q4 comparable sales increased 1.9 percent vs. +1-2% guidance and 1.5% estimates, driven by traffic growth of 1.3 percent. Digital channel sales increased 34 percent, contributing 1.3 percentage points to comparable sales growth. Fourth quarter comparable sales in signature categories (Style, Baby, Kids and Wellness) grew more than three times faster than the company average. 

• Q4 gross margin rate was 27.9 percent, compared with 28.5 percent in 2014, as the benefit from a favorable merchandise mix was more than offset by investments in promotions.
• Co issues in-line guidance for Q1, sees EPS of $1.15-1.25, excluding non-recurring items, vs. $1.19 Capital IQ Consensus Estimate.
• Co issues upside guidance for FY17, sees EPS of $5.20-5.40 vs. $5.16 Capital IQ Consensus Estimate.

Target Earnings Conference Call Highlights

• Guidance: TGT sees Fiscal 2016 comps 1.5-2.5% vs ~2% estimate (Q1 comps slightly lower than this range). Q1 total sales expected to decline excluding pharmacy sales 4.5-5% vs -3.2% estimate. In the guidance, the company said it includes consistent level of buybacks. Full year guidance also assumes some slight margin EBITDA increase.
• Q4 performance played up pretty much in-line as expected -- co knew it was going to be promotional but guests responded favorably to company drivers -- as seen in the traffic. This was the fifth straight quarter of traffic growth and the 1.3% increase was on top of strong 3.8% last year.
• Digital -- co did not quite make its ambitious goal of 40% but it did end the year with 34% growth during Q4
• Merchandise inventory was up 4% - a bit more than the current sales trend. Co said it ended the year with "very clean" inventory position

*DATA SOURCE: BRIEFING*