Target’s Turnaround Has Liftoff

Target Corporation (ticker: TGT) provided U.S. retail investors with a rare bit of good news this earnings season when the company reported impressive earnings, topping Wall Street expectations for first-quarter earnings, revenue and same-store sales. Management also says it is committed to investing $7 billion in re-shaping the business over the next three years.

Target’s first-quarter earnings per share of $1.21 beat consensus analyst expectations of 91 cents. First-quarter revenue of $16.02 billion also outpaced consensus forecasts of $15.6 billion, and Target’s same-store sales declined just 1.3 percent, far less than the 3.7 percent drop Wall Street expected.

“There’s going to be no change to the [$7 billion] plan we laid out in February – we’re committed to executing and making those investments over the balance of the year,” CEO Brian Cornell says.

Cornell says Target will invest primarily in its digital platform and initiatives to improve store traffic.

“We are in the early stage of a multi-year effort to position Target for profitable, consistent long-term growth, and while we are confident in our plans, we are facing multiple headwinds in the current landscape.”

Investors initially reacted positively to the Target report, sending shares higher by more than 2 percent Wednesday morning. Fellow U.S. retailers Macy’s (M), J.C. Penney (JCP) and Nordstrom (JWN) are having a much more difficult time. Shares of all three companies fell more than 17 percent the past week after disappointing earnings reports.

Macquarie analyst Bob Summers says Target is making all the right moves with its turnaround efforts, but investors need to be willing to stomach the risk involved with such an ambitious and expensive plan.

“While we have confidence the moves are directionally correct, there is no certainty intended outcomes are achieved,” Summers wrote this week. “Moreover, sustained concerns over ‘earnings power’ will persist…

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