It is apparent this morning that retailer Target (TGT 69.54, +2.36, +3.5%) was very much on target with its holiday sales activity from merchandising to marketing to fulfillment. That message rang loud and clear when the company raised its sales and earnings guidance for the fourth quarter. Even better, though, it created a sense with its initial full-year 2018 guidance that the newfound momentum will continue.
Like many other retail stocks, shares of TGT have been on fire of late. Since the middle of November, TGT has surged 24%. It is up another 3.5% today following the guidance update, which provided validation for the outsized move in front of the company's actual fourth quarter earnings report.
The latter isn't going to be released until March 6, yet the pre-announcement today is a very nice placeholder for shareholders.
To that end, Target said it expects fourth quarter comparable sales growth in a range around 3.4%. That is comparable with the results it experienced in the November/December period, which Target previously thought would produce comparable sales growth in a range of 0% to 2%. Target, however, benefited more from comparable sales growth across all core merchandise categories that flowed from strong traffic growth, positive store comps, and strength in digital sales.
The fourth quarter comparable sales growth will translate into full-year comparable sales growth of just over 1%. That isn't much in an absolute sense, yet it's reassuring on a relative basis in light of the heightened competition impacting the retail industry.
Target, in turn, is expecting fourth quarter adjusted EPS of $1.30 to $1.40, up from its prior guidance of $1.05 to $1.25. The new guidance accounts for a 6 to 8 cent benefit from a lower structural tax rate in January stemming from the recently enacted tax reform legislation.
For the full-year 2017, adjusted EPS is anticipated to be between $4.64 and $4.74, versus prior guidance of $4.40 to $4.60.
The company's initial full-year 2018 outlook includes an expectation for a low single-digit increase in comparable sales and adjusted EPS of $5.15 to $5.45. The midpoint of the guidance range translates to year-over-year growth of 13% from the midpoint of the full-year 2017 guidance range and leaves TGT trading at roughly 13x estimated FY18 earnings.
The latter consideration will paint TGT as an investment candidate for "GARP" (growth at a reasonable price) investors, who might also be drawn to the company's attractive dividend yield of 3.59%.