This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Target's Earnings Warning Isn't Pummeling the Stock

Stocks in this article: TGT WMT M SHLD

Updated from 9:08 a.m. with additional commentary from Target

NEW YORK ( TheStreet) -- Target (TGT)  missed the mark financially in the second quarter as it continued to deal with soft customer traffic and pressured profit margins following a data breach during the 2013 holiday season.

Click the video below for more on Target's earnings fall:


WATCH: More market update videos on TheStreet TV | More videos from Brittany Umar

Despite the disappointing quarter and a full-year earnings warning, Target shares were advancing 1.1% to $59.17 in trading on Wednesday. Investors should attribute that to gushing optimism from management at the retailer and market psychology.

Target reported second-quarter adjusted earnings of 78 cents a share, in line with its lowered guidance from Aug. 5 and the Bloomberg consensus forecast. Target earlier this month said it expected second-quarter earnings of "within a range around 78 cents a share" compared with a prior outlook for 85 cents a share to $1 a share.  

Net sales were $17.4 billion, eclipsing the Bloomberg consensus estimate of $17.36 billion, and were paced by unchanged domestic same-store sales. By department, Target had the most success in its less discretionary merchandise categories, such as toys and electronics. Sales of apparel and home goods declined.

Domestic same-store sales were consistent with the company's guidance earlier this month. Target's domestic traffic has fallen for nine straight quarters.

See More: 12 Photos That Show How Macy's Is Dismantling Sears

Target Canada had another challenging quarter. Same-store sales declined 11.4%, and gross profit margins fell to 18.4% from 31.6% a year earlier as the company marked down excess inventory. Noteworthy was an 8% decline in units per transaction on the part of customers even as Target aggressively marked down merchandise. 

Target Canada has now incurred a staggering $2.14 billion in operating losses since the company began to build the division in 2011.

Target also issued a full-year earnings warning, guiding to full-year adjusted earnings of $3.10 to $3.30 a share, down from guidance provided in May of $3.60 to $3.90 a share.  The warning mirrored what Wall Street heard from Walmart (WMT)  on Aug. 14. Walmart stated that it expects full-year earnings "to range between $4.90 and $5.15 a share, vs. previous guidance of $5.10 to $5.45 a share. 
Read More: What a Monster Dollar General-Family Dollar Deal Says About Retail

Despite the negative news, Target shares didn't respond harshly as many investors would have expected. Chalk that up to optimism by the management team on the earnings call, including new CEO Brian Cornell, and market psychology 101. Target stated that "in the U.S., traffic trends continue to recover and monthly sales are improving, with July comparable sales up more than 1%," creating early interest on the part of investors that Target is lowering prices and is starting to bring traffic back to the store right before the critical holiday selling season. 

Another aspect is the "kitchen sink theory," whereby a company's financial results are so dour they are unlikely to be any worse moving forward, and could be priced into the stock's valuation. For Target, this theory would apply to its Canadian division, with the company noting that "in Canada, the team is making important changes to operations and the merchandise assortment with a focus on delivering improved results by this holiday season." Cornell stressed the company has a "comprehensive" review underway for fixing the Canadian business, and expects "improved" performance during the upcoming holiday season.

Target said on the earnings call that it experienced "positive comps in the last six weeks in the U.S.," supported by consumer interest in new products, not just departments with various clearance price offerings.

My firm, Belus Capital Advisors, rates Target a sell.

Watch More: Walmart's Financial Problems Explained in 5 Photos and One Vine Video

At the time of publication, the author held no positions in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs