Target Corp. (TGT) Misses Q2 EPS by 2c; Cuts FY14 EPS Outlook
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EPS Growth %: -0.5%
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Earnings before interest expense and income taxes: 1.06B
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Target Corp. (NYSE: TGT) reported Q2 EPS of $0.78, $0.02 worse than the analyst estimate of $0.80. Revenue for the quarter came in at $17 billion versus the consensus estimate of $17.39 billion.
"While results from the quarter didn’t meet our expectations, we are seeing some early signs of progress as we work to improve results in the U.S. and Canada,” said John Mulligan, executive vice president and chief financial officer of Target Corporation. “In the U.S., traffic trends continue to recover and monthly sales are improving, with July comparable sales up more than 1 percent. Better U.S. sales have continued into August, driven by early back-to-school results. In Canada, the team is making important changes to operations and the merchandise assortment with a focus on delivering improved results by this holiday season.”
U.S. Segment Results
In second quarter 2014, sales increased 0.7 percent to $17.0 billion from $16.8 billion last year, reflecting the contribution from new stores and flat comparable sales. Segment earnings before interest expense and income taxes (EBIT) were $1,160 million in second quarter 2014, a decrease of 12.8 percent from $1,330 million in 2013.
Second quarter EBITDA and EBIT margin rates were 10.0 percent and 6.8 percent, respectively, compared with 10.8 percent and 7.9 percent in 2013. Second quarter gross margin rate declined to 30.4 percent from 31.4 percent in 2013, driven by an increase in promotions. Second quarter SG&A expense rate decreased to 20.4 percent in 2014 compared with 20.6 percent in 2013, reflecting disciplined control of expenses across the organization, including the benefit from Target’s expense optimization efforts, partially offset by the de-leveraging impact of flat comparable sales.
Canadian Segment Results
Second quarter Canadian Segment sales increased 63.1 percent to $449 million from $275 million last year, reflecting the contribution from new stores partially offset by an 11.4 percent decline in comparable sales. Second quarter 2014 is the first period with reported comparable sales for the Canadian Segment, reflecting results in 48 Canadian stores that became mature at various points during the quarter. The second-quarter decline in comparable sales reflects the comparison to strong grand opening sales surges in 2013, combined with the impact of market densification later in 2013 which redistributed sales from earlier store openings. Segment EBIT was $(204) million in second quarter compared with $(169) million in 2013.
Second quarter 2014 gross margin rate was 18.4 percent, reflecting the continued impact of efforts to clear excess inventory, compared with 31.6 percent in second quarter 2013, which reflected unusually low clearance markdowns resulting from the short time stores had been open. SG&A expense rate of 48.3 percent in second quarter 2014 compares with 75.2 percent last year, reflecting increased scale in the Canadian Segment and pre-opening costs in last year’s results.
Target Corp. sees Q3 2014 EPS of $0.40 - $0.50, versus the consensus of $0.66.
Target Corp. sees FY2014 EPS of $3.10 - $3.30, versus prior guidance of $3.60 - $3.90 and the consensus of $3.49.
For earnings history and earnings-related data on Target Corp. (TGT) click here.
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