Of all the retailers reporting this week, the biggest delta between the Estimize consensus and the Wall Street consensus is for Target (NYSE:TGT), which releases results tomorrow morning. Currently, the Estimize community is looking for Q4 EPS of $1.31, a good $0.09 above Wall Street expectations, yet still $0.14 lower than the company-issued guidance. This is somewhat rare, as corporations tend to be conservative when issuing guidance. Estimize revenue expectations are only slightly ahead of the Street’s expectations, at $22.2B vs. $22.1B.
In the wake of Wal-Mart’s earnings report last Wednesday, contributors have taken the EPS estimates for Target up $0.02, while revenues have come down by $73M. This is likely due to the fact that Wal-Mart’s bottom line came in higher than expected, while the top line missed. As Target is the closest thing Wal-Mart has ever had to a competitor, many expect it to perform in the same manner.
However, there are three reasons Target is poised to do even better than Wal-Mart this season.
- Target is considered a “higher-end discounter,” and in a heightened consumer sentiment environment, many traditional Wal-Mart shoppers may decide to trade up. With that being said, this period of consumer confidence seems to be playing out a bit differently. While people are encouraged by lower gas prices and an improving employment situation, they are not necessarily spending their disposable income at the traditional retailers as would typically be expected. Instead, there has been more of a focus on electronics, healthcare and autos.
- Unlike Wal-Mart, Target stores are only located here in the U.S. and Canada, with the company just recently announcing its intention to close its Canadian business. Therefore, the retailer will not have to face the same currency headwinds that Wal-Mart (which operates in 27 countries) admitted to in Q4, which caused it to cut its 2015 sales growth outlook to 1-2% from 2-4%.
- Target will benefit from easier year-over-year comparisons this quarter. In late 2013, the company suffered from a huge data breach that weighed heavily on profits. This quarter, it is looking for massive earnings growth of 62% and revenue growth of 3.4%.