It's been tough to own Target. The stock has been all over the place. The shares have traded as high as $82 and as low as $64. In mid-May, the company reported a solid first quarter, but gave lower guidance for the second quarter. While the company met second-quarter guidance, management gave lower guidance again for the third quarter.
In mid-August, Target reported an uninspiring second quarter, with earnings of $1.23 per share, 10 cents better than expected. Revenue fell 7.2% to $16.17 billion, in line with estimates. But the real disappointment came from same-store sales.
Management said same-store sales declined 1.1%. While in line with previous guidance, that was disappointing nonetheless. The number of transactions fell 2.2%, which means Target is having trouble getting foot traffic in the door.
The company slashed third-quarter guidance. Management expects third-quarter earnings between 75 cents and 95 cents per share, vs. the consensus of 96 cents. The company also cut full-year estimates to a range between $4.80 and $5.20 from its original estimate of $5.20 to $5.40. Analysts were estimating $5.13.
Because of the tough retail environment, the company cut same-store sales guidance to a range of negative 2% to 0%. Analysts were at 1.2% for the third quarter and 1.5% for the fourth.
Target reports its third quarter on Wednesday. I don't think investors have any confidence in the plans to turn around same-store sales. Last quarter, Target saw "meaningful" pressure on electronics. The company said one-third of the comp decline was attributable to Apple (AAPL) sales. (Apple is an Action Alerts PLUS holding.) Target also missed on grocery. Digital sales grew 16%, but in the first quarter, digital grew 23%.
The slowdown in Target's signature categories -- style, baby, kids and wellness -- is especially troubling. Signature grew just 3% faster than the company average. Previously, the signature categories grew at three times the pace of the company average. Yes, three times to just 3%.
The consensus is looking for third-quarter earnings of 83 cents per share on revenue of $16.3 billion.
So far, the company has spent $8.8 billion defending its shares under a $10 billion repurchase authorization, and the stock has gone nowhere.
Target usually trades between 14 and 15 times forward estimates. At the current quote, the stock is trading at 13.5 times fiscal 2018 estimates of $5.30. Given the choppiness of the past quarters, the slowdown in foot traffic, the disappointment in grocery and the slowdown in the signature categories, I have virtually no confidence in the consensus estimates. That estimate is still 10 cents per share higher than the range management gave.
Right now, I just can't see how target can hit a bull's eye. I would avoid Target.