Target (NYSE:TGT) is expected to show a return to year-over-year sales growth for the fiscal second quarter when it reports its latest earnings before the stock market opens on Wednesday, August 21.
Analysts at Bank of America expect to see comparable sales growth of 1% compared to a 3.7% decline in the fiscal first quarter based on observed sales data, given easier comparisons and its value focus.
“While observed sales moderated through July, we believe this was driven by a pull-forward of summer sales to June due to extreme heat, a drop off following Target Circle week (July 7 to July 13) as consumers concentrate spending on key promotional periods, and ticket pressure from the incremental price reductions on 1,000 items planned for summer,” they wrote in a note to clients.
Wall Street analysts, on average, expect Target’s Q2 sales to grow 2% year-over-year to $25.2 billion and earnings per share (EPS) up about 20% at $2.18.
Gross margins are expected to benefit from Target’s $2 billion to $3 billion cost savings program, lean inventory position, category mix benefits from apparel green shoots, and a potential moderation in shrink headwinds.
“While discretionary categories remain weak overall, we believe Target’s lean inventory levels position it well for the uncertain macro, as avg. inventory as a percentage of sales has moderated to levels commensurate with weaker economic backdrops,” analysts believe.
They repeated their ‘Buy’ rating on Target and awarded it a $190 price objective.
They see a positive inflection in comparable sales and continued gross margin expansion more than offsetting potential risks including continued or worsening discretionary sales trends, competition in same-day delivery, and a slower-than-expected recovery in gross margins.
Shares of Target traded up 1.3% at about $146 on Monday.