20 May 2021

Target Shares Soar After Bumper Q1 Print

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What’s happening: Shares of Target Corp gained on Wednesday, after the retailer exceeded market expectations for its first quarter.

What happened: Several retailers, including Target, Walmart and Macy's, have been witnessing a rise in spending on apparel and beauty items following the reopening of the economy amid a ramp in vaccinations in the US.

Apart from strong first-quarter results, Walmart alleviated investor concerns around a potential decline in sales by projecting growth to continue in the back half of the year.

How were the results: The Minneapolis, Minnesota-based retailer reported strong growth in sales for the first quarter, with both top- and bottom-line figures surpassing market expectations.

  • Group revenues surged 23.4% to $24.2 billion, exceeding the consensus estimate of $21.76 billion.
  • Excluding onetime items, earnings came in at $3.69 per share, significantly higher than the Street projection of $2.25 per share.

Why it matters: With customers shifting their spending from essential items to apparels, home goods and travel gear, Target seems to be on track for revenue growth and to capture market share. The company’s apparel sales surged more than 60%, while home goods climbed around 35% in the first quarter. Sales of products including sporting goods and appliances also grew over 30%.

Target’s own private label brands, including All in Motion women’s activewear, performed well, growing by a record 36% in the first quarter. The big-box retailer’s overall comparable sales grew by a higher-than-expected 22.9%, driven by increased store traffic and digital sales.

Management raised their projections for margins in 2021, saying that the company is likely to end the year with operating margins well above last year’s 7% and could achieve 8% or higher.

Target also guided to growth of mid-to-high single digits in comparable store sales for the second quarter, while saying that growth in this parameter could continue through the remaining two quarters of the year.

How shares responded: Target’s shares spiked 6.1% to settle at $219.01 on Wednesday, following the release of quarterly results. The stock has gained more than 16% over the past three months.

What to watch: Investors will keep an eye on Target’s sales in the coming quarters, with the easing of restrictions across the country. There continues to be some concern, however, around a decline in the company’s digital sales growth. Markets will also monitor the rate of vaccinations.

The Markets Today

     

Crude oil will be in focus today, after recording sharp losses on Wednesday.

Context: Crude oil headed south on Wednesday, notching the lowest settlement in more than three weeks, following data showing an increase in crude supplies.

Details: Commodities have recorded wider gains so far this year, driven by increased demand with most parts of the world recovering from the pandemic.

On Tuesday, Brent crude briefly climbed past the $70 per barrel mark before turning lower.

“Besides the strong technical resistance, increased risk aversion in view of the weakness on the stock markets and the massive slump in so-called cryptocurrencies is likely weighing on its price, as no doubt is the current news backdrop,” Commerzbank analyst Eugen Weinberg said in a note.

Investor sentiment was hurt when the EIA (Energy Information Administration) reported on Wednesday a rise in US crude inventories by 1.3 million barrels for the week ending May 14, after two weeks of declines. The API (American Petroleum Institute) too had reported a rise of 620,000 barrels on Tuesday.

WTI (West Texas Intermediate) crude for June delivery tumbled 3.3% to settle at $63.36 per barrel on the NYMEX (New York Mercantile Exchange) on Wednesday. Crude prices fell as much as 5% earlier in the session. July Brent crude shed $2.05 to close at $66.66 per barrel on ICE Futures Europe.

Gasoline supply contracted by 2 million barrels for the week. Despite this, June gasoline fell 6 cents to settle at $2.10 a gallon on Wednesday.

What to watch: Rising covid-19 cases in some parts of the world, including India, remain a top concern for markets, with total global infections surpassing 164.6 million.

Traders also await EIA’s data on natural gas stockpiles. Working gas held in storage facilities had risen by 71 billion cubic feet in the week ending May 7.

Other Markets: US indices closed mostly lower on Wednesday, with the Dow Jones index and S&P 500 down by 0.48% and 0.29%, respectively. However, the Nasdaq 100 rose by 0.15% in the session.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s producer prices, Eurozone’s current account and construction output, Italy’s construction output and current account, Saudi Arabia’s inflation rate, South Africa's SACCI business confidence index, value of recorded building plans passed and South African Reserve Bank interest rate decision, UK’s CBI industrial trends orders, Turkey’s car production and government debt, Canada’s ADP employment change and new housing price index, America’s initial jobless claims, Philadelphia Fed manufacturing index and CB leading index, Russia’s producer prices, as well as Argentina’s economic activity index.

 

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