What To Watch In Target's Earnings Report

Target (TGT) is scheduled to report results of its third fiscal quarter before the market open on Wednesday, November 18, with a conference call scheduled for 8:00 am EDT. What to watch for:

1. GUIDANCE: In May, Target declined to provide Q2 guidance or updated FY20 guidance, citing the "unusually wide range of potential outcomes as a result of the highly fluid and uncertain outlook for consumer shopping patterns and government policies related to COVID-19." In August, Target said Q2 should not be a "predictor of our long-term performance," adding that August comps were "off to a great start."

BofA analyst Robert Ohmes notes that consensus 2021 estimates for Target are up less than 3% from pre-COVID-19 levels despite the fact that omnichannel penetration and higher-margin general merchandise momentum are enhanced heading into next year. He thinks Target has benefitted as customer shopping trip consolidation has allowed the retailers to gain share and sees upside to his Q3 comp growth forecast of 10% for Target, believes it could see gross margin upside in Q3 as well, and sees upside in Q4 too. Jefferies analyst Stephanie Wissink raised her Q3 same-store sales growth estimate for Target to 11%, which she said is ahead of consensus at 10.4%, noting that her review of alternative data suggests foot traffic was relatively stable and website visits decelerated only modestly. 

2. COMPETITION: In September, Target announced that it would hold its Target Deal Days event on October 13 and 14, coinciding with Amazon's (AMZN) two-day Prime Day event. In a statement, Target said: "By kicking off our holiday deals earlier than ever, offering Black Friday pricing throughout the full month of November and extending our Price Match Guarantee, we're letting guests know they don't need to wait or face the crowds to get the best deals, all with no membership fees required."

Deutsche Bank analyst Paul Trussell believes Target has experienced an acceleration of trends in the quarter relative to August as the company moved past the slower back-to-school period. The company has a strategy that will resonate with consumers including Black Friday pricing throughout all of November, Trussell said.

3. ULTA PARTNERSHIP: Target announced a long-term partnership with Ulta Beauty (ULTA) under which the "shop-in-shop" concept will offer established and emerging prestige brands online and in select Target locations nationwide beginning next year. BMO Capital analyst Simeon Siegel believes the arrangement will consist of a royalty paid to Ulta for a curated assortment of specifically selected "hero" SKUs meant to elevate Target's beauty selling experience and further amplify Ulta's offering and experience. Siegel thinks the arrangement is exclusive on both ends and could serve as a capital light and margin heavy growth opportunity going forward.

4. STOCK STILL UNDERVALUED: Target is classified as a big-box retailer but these days the company looks more like a department store than any department store and is using the department-store model to succeed where department stores can't, Teresa Rivas wrote in Barron's. Target's stock stagnated for years as the company tried to figure out how to combat the rise of Amazon.com, but that period of pain prepared it for success during the pandemic, the author noted.

5. USPS CHANGES: On November 16, the United States Postal Service filed notice with the Postal Regulatory Commission of price changes to take effect January 24, 2021. The proposed prices, approved by the Postal Service Governors, would raise Shipping Services product prices approximately 3.5% for Priority Mail service, and 1.2% for Priority Mail Express service. Target is one of the biggest shippers of commercial parcels in the U.S. and could be impacted by the rate change.