03 March 2021

Target Hits Bullseye in Q4, But Shares Slide

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News shaping
the markets today

     

What’s happening: Shares of Target Corporation fell on Tuesday, despite the retail giant exceeding estimates for the fourth quarter.

What happened: Robust demand for home goods and groceries amid the pandemic-induced work-from-home trends helped Target report 21% revenue growth for the holiday quarter.

However, the company’s plans to make a massive investment over the next several years exerted pressure on the stock on Tuesday.

How were the results: The Minneapolis, Minnesota-based retailer reported strong growth in both its top- and bottom-line results, with both figures beating market views.

  • Revenues grew 21.1% to $28.34 billion, surpassing the consensus estimate of $27.48 billion.
  • Net earnings jumped 65.6% to $1.38 billion in the fourth quarter.
  • Adjusted earnings came in at $2.67 per share, exceeding market expectations of $2.54 a share.

Why it matters: Target and its peer Walmart have delivered a robust performance though 2020 by increasing their focus on online sales amid the pandemic, capturing market share from smaller retailers that had only physical outlets.

Target’s comparable sales surged sharply by 20.5% last quarter, easily surpassing analyst views of 16.4% growth. Sales recorded by same-day deliveries and store pickups jumped a whopping 212%, with stimulus cheques supporting customer spending during the quarter.

“We're in a position to play offense and lean into the opportunity to build on last year's momentum,” COO Michael Fiddelke said during the earnings call.

The discount retailer also announced plans to spend a massive $4 billion annually over the next several years to upgrade its stores and improve its online business. The amount is significantly higher than the $2.7 billion invested last year, and the $3 billion spent in 2019.

The increased investment projected for the coming years will hurt the company’s margins. Management warned of 2021 operating margins coming in below the 7% posted last year, while assuring investors that the figure would remain above 6%. Despite the solid performance, Target refrained from issuing any sales or profit guidance for fiscal 2021, citing uncertainties around shopping trends.

How shares responded: Target’s shares closed lower by 6.8% at $173.49 on Tuesday. Despite the stock losing around 2% over the past three months, it has gained around 60% in the last 52-week period.

What to watch: Markets are likely to keep an eye on Target’s sales growth, which could decelerate from the strong numbers posted through 2020, with the covid-19 vaccine rollout increasing prospects of a return to pre-pandemic life. Investors will also monitor Target’s investment plan and how this contributes to sales growth.

The Markets Today

     

Crude oil will be in focus today, ahead of the OPEC+ meeting and the EIA’s report on crude stockpiles.

Context: Oil prices trended lower on Tuesday, with traders awaiting the next OPEC+ (Organization of the Petroleum Exporting Countries and its allies) meeting, which will determine production levels from next month.

Details: Last month the OPEC+ group had announced plans to maintain oil production at the current level, although Saudi Arabia volunteered to cut output by 1 million bpd (barrels per day) in February and March.

If other OPEC+ nations decide to increase crude supply by 500,000 bpd, Saudi Arabia may decide against continuing production cuts this month, said Commerzbank’s commodity analyst Eugen Weinberg.

The OPEC+ group is all set to hold a committee meeting later today to announce its output recommendations, while the decision will be made at the group’s meeting scheduled for Thursday.

Meanwhile, the American Petroleum Institute (API) reported late Tuesday that crude stockpiles in the US had grown by 7.36 million barrels in the week ended February 26, following a 1.03 million rise in the prior week.

WTI (West Texas Intermediate) crude for April delivery declined 1.5% to settle at $59.75 per barrel on the NYMEX (New York Mercantile Exchange) on Tuesday, after climbing as high as $61.21 a barrel earlier in the session. May Brent crude lost 1.6% to close at $62.70 a barrel on the ICE Futures Europe, after notching an intraday high of $64.13 per barrel. Both grades of crude oil also recorded losses on Monday.

What to watch: Traders await the EIA’s data on crude oil inventories, which are projected to decline 0.928 million barrels, following a 1.285 million barrel rise in the week ended February 19, 2021. Moreover, the OPEC+ committee meeting today will provide some direction to crude prices.

Rising covid-19 cases remain a top concern for markets, with total global infections exceeding 114.7 million.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.46%, 0.81% and 1.68%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s consumer price index and producer prices, South Africa’s IHS Markit PMI, France’s government budget value, services PMI and composite PMI, Spain’s services PMI, Italy’s services PMI, composite PMI and gross domestic product, Germany’s services PMI and composite PMI, Eurozone’s services PMI, composite PMI and producer prices, UK’s services PMI, composite PMI and budget 2021, Brazil’s GDP growth rate, services PMI and composite PMI, Canada’s value of building permits as well as the US MBA mortgage applications, ADP employment change, services PMI, composite PMI, ISM services PMI and Fed’s Beige Book.

 

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