Retail Giant Target Slashes Earnings Estimates For 2H16 Citing "Challenging Environment"

After reports yesterday that Tech Bellwether Cisco plans to layoff up to 20,000 people (see "Global Economic Bellwether Cisco Reportedly Fires 20% Of Workforce") this morning retail giant Target also guided lower for 2H 2016 on the back of a "challenging environment in the back half of the year."

And the market is not happy...

Target beat earnings for 2Q 2016 at $1.23 adjusted EPS vs. consensus $1.13 but slashed guidance for 3Q and the 2nd half of the year with CEO, Brian Cornell, saying the company is facing a "difficult retail environment."  Comp store sales for 2Q 2016 declined 1.1% on a 2.2% decline in volume and offset by a 2.6% price increase per unit.  The company noted on it's earnings call that sales of Apple products were down 20% in 2Q.

TGT

The company called for comp store sales in 2H 2016 of -2% - 0%.  Full year 2016 guidance was slashed $0.30 to $4.80 - $5.20 vs. prior guidance of $5.20 - $5.40.  That said, the company beat their 2Q 2016 forecast which called for a midpoint adjusted EPS of $1.10 so when you factor in the beat this quarter the guide down is really more equivalent to about $0.43 or about 8%.

“While we recognize there are opportunities in the business, and are addressing the challenges we are facing in a difficult retail environment, we are pleased that our team delivered second quarter profitability above our expectations,” said Brian Cornell, chairman and CEO of Target. “Looking ahead, we remain focused on our enterprise priorities as we continue to see the benefits of investing in Signature Categories, store experience, new flex-format stores and digital capabilities. Although we are planning for a challenging environment in the back half of the year, we believe we have the right strategy to restore traffic and sales growth over time.”

 

While Target has plans in place to strengthen results over time, based on the current retail environment the Company believes it is prudent to lower its expectations for comparable sales in the second half of the year. In both the third and fourth quarters of 2016, Target now expects comparable sales growth in the range of (2.0) percent to flat.

 

In third quarter 2016, Target expects both GAAP EPS from continuing operations and Adjusted EPS of $0.75 to $0.95.  For full-year 2016, Target now expects GAAP EPS from continuing operations of $4.36 to $4.76, compared with prior guidance of $4.76 to $4.96. The Company expects full-year 2016 Adjusted EPS of $4.80 to $5.20, compared with prior guidance of $5.20 to $5.40. The 44-cent difference between the guidance ranges for GAAP EPS from continuing operations and Adjusted EPS primarily reflects early debt retirement losses already reported in 2016.

Guess it's time to put that rate hike on hold again.