Industry Spotlight

US retail set for rebound as Target share price hits all-time high?

Target’s [TGT] share price exceeded $100 for the first time last week to reach an all-time high of $106.32 after its second-quarter earnings and revenue beat expectations, and its full-year estimates were raised. 

In further (surprising) good news for the US retail sector following Barneys filing for bankruptcy and JCPenney’s [JCP] mooted delisting from the NYSE, Lowe’s [LOW] and Nordstrom [JWN] also made gains following earning results.

 

Smashing Targets 

The US big-box retailer saw its quarterly profit increase 17%, with its home delivery and in-store pick up business boos sales to $18.42bn. Analysts had expected revenue of $18.34bn. Sales were also up 3.4% in stores, higher than analysts’ estimates of 2.9%, while earnings per share, at $1.82, were higher than the $1.62 forecast. 

Target CEO Brian Cornell said: “Traffic and sales continue to grow while our EPS reached an all-time high, driven by the strength of our team’s execution and their focus on delivering for our guests.”

Unlike other struggling brick-and-mortar retail chains, Target has managed to develop new innovative ways of getting products to customers, while utilising its existing network of stores. This is demonstrated by the firm’s most notable growth areas: Target’s digital channel sales were up by 34%, responding strongly to the cash that’s been pumped into the digital arm of the business. While same-day fulfilment services from stores, including in-store pick-up, accounted for almost 1.5% of Target’s overall store sales growth.

“As we’ve been saying for years we believe that in-store shopping will continue to be important and account for the vast majority of retail sales for many years to come,” Target’s Chief Operating Officer John Mulligan said during the firm’s the earnings call. 

“As we’ve been saying for years we believe that in-store shopping will continue to be important and account for the vast majority of retail sales for many years to come” - Target’s Chief Operating Officer John Mulligan

“However, in a world where consumers have more choices than ever, inferior brick-and-mortar experiences will go away. That’s why we’re investing heavily both in our store assets and in the experience our team provides.”

In response to the results, Target raised its full-year forecast to between $5.90 and $6.20 adjusted earnings per share, a solid increase on its previous estimate of $5.75 to $6.05.

 

Lowe’s moves high

Results from homewares and DIY chain Lowe’s also beat expectations. Sales at stores open for at least 12 months grew 2.3% compared to analyst estimates of 1.9%, while US same-store sales grew 3.2%, beating competitor Home Depot’s growth of 3.1%. 

President and CEO, Marvin R. Ellison, said: “We are pleased that we delivered positive comparable sales in all 15 geographic regions of the US. This is a reflection of a solid macroeconomic backdrop and continued momentum executing our retail fundamentals framework.”

 

Market cap $83.34bn
PE ratio (TTM) 33.95
EPS (TTM) 3.16
Return on Equity (TTM) 60.02%

Lowe's share price vitals, Yahoo finance, 27 August 2019

 

Net income reached $1.68bn ($2.14 per share) for the quarter, up from the $1.52bn ($1.86 per share) achieved in the same quarter last year. Revenue was up to $20.99bn, higher than the expected $20.94bn. The company also repurchased $1.96bn of stock under its share repurchase programme, and paid $382m in dividends in Q2.

Analysts are meanwhile positive on Lowe’s share price potential moving forward. “Looking at this report quickly, looking at the last couple of reports, it seems that under the guidance of Marvin, the new CEO, Lowe’s is really getting its act together. And frankly, if we’re right here and this continues, the stock has a long way to run,” Oppenheimer analyst Brian Nagel told CNBC.

 

Nordtrom gets carried away

As the positive results for Target and Lowe’s came out, department store chain Nordtrom released mixed results that despite showing slowing sales, did beat analyst expectations, with earnings per share reaching 90 cents, compared to the 75 cents estimated. 

The stock did see an earnings bounce, which later retreated, as the company’s share price popped 16% the day after earnings (22 Aug), before falling 8% to $28.28 by 26 August.

 

Short-sellers get battered 

The surprise gains in retail hit short-sellers, who held 2.8% of Target’s shares as of 20 August, hard. Paper losses amounted to $479 after TGT popped 20%, bringing total losses to those betting against Target in 2019 to $971m, according to finance data firm S3 Partners.

Head of predictive analytics for S3, Ihor Dusaniwsky, told The Financial Times: “People have been bloodied on the bell. They may hope the price weakens in coming days to see if their short positions improve, instead of dropping their positions today."

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