Target Corp (NYSE:TGT) will hand down its second quarter earnings on August 20, with Wall Street expecting the retail giant to report year-over-year declines in both revenue and earnings.
Revenue is pegged at $24.88 billion, a 2.3% drop from the year-ago period, while earnings per share are expected to slide 19% to $2.08.
While a beat on earnings is expected, UBS analysts believe the bigger question for investors is what the company signals about its leadership transition and long-term strategy.
“The market remains focused on Target’s future more so than the Q2 print,” UBS wrote.
The firm identified three key debates ahead of the results: the trajectory of the business, leadership succession, and the scale of investment needed to advance Target’s turnaround.
For Q2, UBS believes Target’s results should surprise to the upside, likely from a combination of sequential comp improvement, price increases, and temporary tailwinds, such as the impact of Retail Inventory Method accounting.
UBS sees comparable sales falling less than in the prior quarter, aided in part by new product launches.
“We think the investment community is expecting a comp decline in the -1% to -2% range with some of the improvement being driven by the launch of the Nintendo Switch during the period,” the analysts wrote.
The firm also believes “the retailer will generate significant profit outperformance due to a combination of steady shrink improvement, the timing of costs versus price increases and other expense containment,” potentially leading the market to believe “that Target can generate $9 or better of EPS this year.”
But UBS cautioned that fundamentals may take a back seat for this quarterly report.
“In a nutshell, Target will likely post a very good Q2 print and raise the low-end of its outlook,” they wrote. “Though, the fundamentals may take a back seat for this print. This is because the sentiment on the stock is unlikely to improve until there is more information on Target’s future. That begins with a succession plan.”
The analysts wrote that history offers numerous examples of turnarounds under a new leader. “In our view, Target has the foundation and scale to stage a recovery, making the stock a longer-term opportunity,” they wrote.