Why Target Corporation Stock Dropped Today

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What happened

Shares of Target Corporation (NYSE: TGT) were heading lower today after the big-box chain reported strong sales growth in its fourth-quarter earnings report but disappointed on the bottom line. Investors didn’t seem to like that result, and sent the stock down 5.4% as of 1:57 p.m. EST.

The entrance to a Target store

Image source: Target.

So what

Target posted a solid performance in the key holiday quarter, with comparable sales increasing 3.6% on a 3.2% uptick in traffic and a 29% jump in digital sales. Overall revenue in the quarter, which included an extra week, increased 10% to $22.77 billion, topping estimates at $22.53 billion. However, those sales increases came at a cost as the company invested in higher wages and digital initiatives. Gross margin fell 40% to 26.2%, and selling, general, and administrative expenses were up 100 basis points to 18.5% of revenue. In spite of the top-line growth, adjusted earnings per share still fell from $1.45 to $1.37, missing estimates by a penny. Considering the strong sales growth, though, investors seemed to think earnings should have been higher.

CEO Brian Cornell summed up the quarter by saying, “Our fourth quarter results demonstrate the power of the significant investments we’ve made in our team and our business throughout 2017,” noting growth in both stores and online and that sales increased in all five of the company’s core merchandise categories.

Now what

With 1.8% comparable sales in both its stores and online channel, the company seems to be executing its strategy well. Looking ahead to the current year, management sees growth continuing, projecting low-single digit comparable sales growth and earnings per share of $5.15-$5.45, up from $4.71 last year and in line with analyst expectations of $5.27.

Considering Target shares are up 25% over the last six months, investor expectations may have gotten a little ahead of performance, but this was a solid report overall.

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