Target Lifts 2015 Outlook As Q2 Results Beat Estimates

(RTTNews) - Discount-store operator Target, Inc. (TGT) on Wednesday reported a profit for the second quarter that more than tripled from last year, reflecting higher sales and improved margins.

Adjusted earnings per share from continuing operations and quarterly sales topped analysts' expectations. The company also provided earnings guidance for the third quarter in line with the Street view and once again raised its earnings outlook range for fiscal 2015.

Of late, Target has made several changes to turn around its business. Earlier this year, the company closed the money-losing Canadian operations. In mid-June, Target said that it has agreed to sell its pharmacy and clinic businesses to drugstore chain CVS Health Corp. (CVS) for about $1.9 billion.

Brian Cornell, chairman and CEO of Target said, "We're very pleased with our second quarter financial results, as traffic growth, strong sales in our signature categories and continued expense discipline drove better-than-expected profitability. While the momentum in our financial results is encouraging, we have much more to accomplish."

The Minneapolis, Minnesota-based retailer reported net earnings for the second quarter of $753 million or $1.18 per share, up sharply from $234 million or $0.37 per share in the prior-year quarter.

Target Canada Co. completed a court-approved real estate sales process during the latest quarter. After-tax losses from discontinued operations were $20 million in the quarter, compared with $157 million in the same period last year.

Excluding items, adjusted earnings from continuing operations for the quarter were $1.22 per share, compared to last year's $1.01 per share.

On average, 22 analysts polled by Thomson Reuters expected the company to report earnings of $1.11 per share for the quarter. Analysts' estimates typically exclude special items.

Sales for the quarter grew 2.8 percent to $17.43 billion from $16.96 billion in the same quarter last year. Analysts' consensus revenue estimate was $17.40 billion.

Sales growth reflects a 2.4 percent increase in comparable sales combined with sales from new stores, driven primarily by 1.6 percent growth in comparable transactions. Average transaction amount rose 0.8 percent.

Digital channel sales grew 30 percent, contributing 0.6 percentage points to comparable sales growth. Comparable sales in signature categories such as Style, Baby, Kids and Wellness, grew three times faster than the company average.

Gross margin rate improved 50 basis points to 30.9 percent, reflecting the benefit of annualizing heightened promotional markdowns last year and a favorable merchandise mix this year. SG&A expense rate declined 60 basis points to 19.9 percent, reflecting ongoing cost savings initiatives and expense timing.

Target returned $1 billion to shareholders in the second quarter through dividends and share repurchases.

Looking ahead to the third quarter, Target forecast adjusted earnings in a range of $0.79 to $0.89 per share, compared to $0.79 per share in the year-ago period. The Street expects earnings of $0.86 per share for the quarter.

For fiscal 2015, the company raised its adjusted earnings guidance to a range of $4.60 to $4.75 per share from the prior range of $4.50 to $4.65 per share. The Street is currently looking for full-year earnings of $4.62 per share.

TGT closed Tuesday's trading at $80.30. In Wednesday's pre-market activity, the stock is up $3.58 or 4.46 percent to $83.88.