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Target (NYSE:TGT) eases fears of US recession with blockbuster Q2 report

  • Retailer posts $1.82 Non-GAAP EPS and $18.42bn revenue versus $1.62 and $18.32bn consensus
  • Raises guidance for full-year after ‘outstanding performance’
  • Shares soar to intraday high of $102.01, other retailers also make gains in Thursday’s premarket

Target Corp (NYSE:TGT) delivered a blockbuster Q2 corporate report on Thursday, which gave the retail sector a fresh shot in the arm and eased investor fears of a US recession. The company’s earnings and revenue beats paved the way for gains across the board for big-box retailers with Best Buy (NYSE:BBY) and Office Depot (NASDAQ:ODP) among those benefiting.

Analysts had predicted a strong quarter for Target, but it blew through expectations with Non-GAAP EPS of $1.82, a full 20 cents above the Wall Street consensus, and revenue of $18.42bn, 5% up year-over-year and a handy $100m ahead of the pre-report forecasts.

After a gloomy few days with talk of a possible recession in the US growing, Target’s “outstanding performance”, as noted by CEO Brian Cornell in a statement, eased the anxiety. Target shares soared (+19%) to record highs after the release of the reports. Its latest $102.01 price is more than $11 above the previous all-time intraday high set back in September 2018.

The Minnesota-headquartered company’s stock has now advanced 50% since 1stJanuary, and its class-leading performance has helped to raise the level of competitors. That was true again on Thursday as Best Buy (+3%), Abercrombie & Fitch (NYSE:ANF) (+4.7%), Tilly’s (NYSE:TLYS) (+3.4%), Bed Bath & Beyond (NASDAQ:BBBY) (+5.2) and Office Depot (+3.5%) all rallied on positive investor sentiment.

A closer look at Target’s report uncovers a few more impressive figures too. The retailer delivered a 3.4% increase in comparable sales during the period ending July, which topped the 3.0% growth consensus. Transactions and average transaction return were also up 2.4% and 0.9% respectively, while comparable digital sales surged 34% quarter-over-quarter.

Gross margin climbed 30bps to 30.6% as a carefully implemented strategy to optimise the pipeline of costs and pricing paid dividends while operating margin widened from 6.4% in Q2 2018 to 7.2% during the latest quarter. Cornell said the impressive showing had prompted the company to raise its EPS guidance for the full year.

Target is now confident of delivering $5.90–$.6.20 earnings by the year’s end, a $15 cent hike on both the bottom of the top range provided previously. Analysts are expecting Target to come with $5.94 EPS and $78bn sales for the period.

Cornell added: “By appealing to shoppers through a compelling assortment, a suite of convenience-driven fulfilment options, competitive prices and an enjoyable shopping experience, we're increasing Target's relevancy and deepening the relationship between our guests and our brand.”

Trade tariffs, adverse weather and other economic headwinds have been well documented during the last week, but Target appears to be navigating headline risks to drive sustainable growth. Just after the release of the latest report, the company had 11 Buy and 12 Hold ratings and not a single bear at Sell. The average price target is $90.64.