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NEW YORK — Discount retailer Target Corp. reports earnings for the first quarter on Wednesday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Target Corp. is struggling with slower sales and rising delinquencies in its credit card business.
Discounters, particularly Wal-Mart Stores Inc., have benefited from consumers switching to cheaper stores. But at Target, where more than 40 percent of revenue comes from nonessentials such as funky jeans and quilts, the cheap-chic formula that once was its strength became a drag as shoppers cut their spending overall.
Target has been reducing staff, tightening consumer credit card underwriting and freezing senior managers' salaries. It's also expanding further into food sales, which it believes will help drive customer traffic.
The company is facing pressure from activist shareholder William Ackman to make more dramatic changes. Ackman, who leads hedge fund Pershing Square Capital Management, which owns 7.8 percent of the discounter's outstanding shares, has been fighting to change its board of directors, a move he believes will provide fresh perspectives and make the discounter more profitable.
Target has rejected his proposal to separate Target's stores and distribution centers from the land it owns underneath them. Ackman has been urging the company to look at this and other ways to unlock the company's real estate's value.
Target reported this month that its same-store sales edged up 0.3 percent in April, falling short of Wal-Mart's 5 percent gain, excluding fuel sales. Same-store sales — sales at stores open at least a year — is considered a key indicator of a retailer's health.
But Target predicted its first-quarter results will beat analysts" expectations as its retail segment performed better than expected and its credit card segment was in line with the company's projections.
BY THE NUMBERS: The Minneapolis-based company said on May 7 that it expects to report first-quarter earnings "well above" analyst expectations of 52 cents per share at the time. Analysts surveyed by Thomson Reuters now expect the company to earn 59 cents per share on revenues of $14.81 million for the quarter.
ANALYST TAKE: Todd Slater, an analyst at Lazard Capital Market, wrote in a recent note that "with the uncertainty surrounding the credit environment, substantial delinquencies and charge-offs, sustained margin pressure due to sales mix and (same-store sales) likely to continue to underperform as its credit card holders cut back amid other challenges, we see few catalysts and therefore no reason to be constructive on the shares."
WHAT'S AHEAD: Analysts will want to know how much of a distraction Ackman's proxy fight is, how Target is expanding its food business and what other changes it is making to drive customer traffic and increase profitability.
STOCK PERFORMANCE: Shares of Target rose almost 37 percent in the quarter but fell almost 27 percent in the past 52 weeks overall. The shares are trading at around $40, the low end of their 52-week range of $25 to $59.55.
