Target Unveils New Strategy Amidst 13 Percent Share Drop

Wal-Mart Stores Inc. and Home Depot Inc. reported strong quarterly sales, as both of the retail behemoths also boosted their dividends.

Sales have dropped as traffic to its stores has also petered out. The exact impact of that decision has been tough to quantify, but most observers agree it’s at least part of the reason Target’s top line has been dwindling for most of the past few quarters.

The disappointing results caused Target’s shares to drop 14 percent in pre-market trading. Mr. Gregg W. Steinhafel is one of the biggest insider owners in Target Corporation (NYSE:TGT), according to U.S. Securities and Exchange Commission (SEC) filings.

Target Corp. became a retail phenomenon – and a stock market darling – with a rare mix of hip products and bargain prices. But while it laid out a goal to grow comparable store sales past year by 1.5 to 2.5 percent, it ended up falling short of that goal with a 0.5 percent decline. Generally speaking, earnings are expected to fall in coming quarters.

Executives pointed to the success of its exclusive Cat & Jack children’s line, which launched previous year, is on track to generate $1 billion in sales, and has the potential to be the largest children’s brand in the U.S. The YoY overall sales decline would partially stem from the removal of pharmacy and clinic sales from this year’s results. The company also intends to invest in merchandise categories such as Style, Baby, Kids and Wellness. Many of its rivals fell, too, including deep discount chains that will now face tougher competition on prices. Target pointed to rapidly changing consumer behavior as the main driver of its poor performance.

All traditional retailers have struggled as Amazon.com and other online retailers draw shoppers away, but Target has been unable to keep pace with Wal-Mart Stores Inc., which posted another quarter of higher customer traffic and same-store sales.

Digital sales rose 34% Y/Y and contributed 1.8 percentage points of growth. Target Corporation had a return on equity of 25.18% and a net margin of 4.75%. Total REDcard penetration climbed to 24.3% from 23% in the year-ago quarter. Riverhead Capital Management LLC now owns 115,508 shares of the retailer’s stock valued at $7,933,000 after buying an additional 110,184 shares during the last quarter. Let’s take a closer look at the current earnings forecast, particularly the things traders should pay close attention to. For 2017, Target Corp.is projecting an adjusted profit of $3.80 to $4.20 per share, far below what Wall Street was projecting. Target Corporation’s dividend payout ratio is now 42.93%.

The company ended the quarter with cash and cash equivalents (including short-term investments) of $2,512 million, long-term debt and other borrowings of $11,031 million and shareholders’ investment of $10,953 million. Earnings per share for the recently concluded quarter is expected to come in at $1.51 a share with $20.74B in revenue.

Target reported a fourth-quarter profit of $1.45 a share, missing forecasts for .51, on sales of $20.69 billion, ever so slightly below expectations for $20.7 billion.

Target’s payout ratio was 48% in 2016, and management’s earnings guidance range for 2017 implies a payout ratio between 57% and 63% – far from a unsafe level.

Target carries a Zacks Rank #3 (Hold). The PEG ratio represents the ratio of the price to earnings to the anticipated future growth rate of the company.