21 May 2020

Target Hits Bullseye with Online Initiatives

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News shaping
the markets today

     

What’s happening: Shares of Target Corporation fell on Wednesday, despite the big-box retailer reporting better-than-expected revenue and earnings for the first quarter.

What happened: Widespread lockdowns imposed by the government have resulted in people stockpiling essential items. This trend has boosted demand for large retailers like Target, Home Depot and Walmart, which have experienced a sharp rise in the sales of staples and cleaning products.

Panic buying, coupled with shelter-in-place orders and social distancing guidelines, have driven online sales. Target was better positioned than its rivals to tap into this opportunity, as the Minneapolis, Minnesota-based company had started taking serious initiatives to drive its ecommerce businesses as early as 2017. Among these were its acquisition of same-day delivery company Shipt in 2017 with the aim of launching same-day grocery delivery from its stores.

These initiatives helped Target achieve triple-digit growth in online sales.

How were the results: The big-box retailer reported a decline in overall profits, with an increase in spending on operating amid the coronavirus crisis.

  • Target’s net income came in at $284 million, or 56 cents per share, down from $795 million, or $1.53 per share, in the same quarter last year.
  • Revenues grew to $19.62 billion, from $17.63 billion in the year-ago quarter, beating the consensus view of $19.02 billion.
  • Adjusted earnings were reported at 59 cents per share, surpassing the consensus estimate of 44 cents per share.

Why it matters: Target benefited from a massive surge of 141% in online sales during the quarter, helped by its earlier investments in providing same-day delivery services. The company also benefitted from its newer offerings, like curbside pickup and click-and-collect.

Target reported 10.8% growth in same-store sales, while its same-day delivery jumped 278% in the first quarter.

Unlike prior months, the company saw an increase in demand for beauty products and clothes in late April due to the arrival of stimulus checks.

Target had already withdrawn its full-year guidance in March and declined from issuing an outlook during the latest earnings call. Management announced expenses of around $500 million related to coronavirus, with higher wages to employees and steps to adhere with safety standards at its outlets.

How the shares responded: Shares of Target declined by 3.3% during the regular session on Wednesday. This may have been due to profit-taking rather than any inherent issue with the company. The stock has been resilient, rising 10% over the past month and is up more than 1% in the last three months.

What to watch: With customers beginning to spend on non-essential items following the arrival of stimulus checks and as lockdown measures ease across the world, investors will be looking out for news of sales growth at Target and other discount retailers. Investors will also be keen to know whether the company is able to maintain the supply of all items to keep up with demand.

The Markets Today

     

The US dollar will be in focus today, ahead of various economic reports scheduled for release during the day.

Context: The greenback slipped versus the euro on Wednesday, following a sharp rise in global equity markets in the previous session. The euro climbed to 1.0975 against the US dollar in the initial part of the session and spent the remainder of the day on the defensive.

Details: With global stock markets posting strong gains in the previous session and investors assessing the reopening of many economies around the world, the euro enjoyed positive momentum throughout the session on Wednesday.

The common currency of the countries in the European Union also benefitted from the recently announced proposal of a €500 billion fund by France and Germany to offer grants to the regions hardest hit by the covid-19 crisis.

The EUR/USD stayed close to the 1.1000 level, despite the release of Fed minutes. No surprises were also expected from the FOMC minutes after Fed Chairman Powell’s speech on Tuesday.

In the European session, the EUR/USD pair was trading down by 0.1% at 1.0967 at 9am GMT.

What to watch: Traders await a basket of economic reports from the US which can prove to be significant market movers. Reports including initial jobless claims, Philadelphia Fed manufacturing index, services PMI, manufacturing PMI, existing home sales and CB leading index will be released today.

Around 2.4 million persons are estimated to have filed for jobless claims benefits in the week ended May 16. The IHS Markit US Services PMI is expected to rise to 30 in May, from a reading of 26.7 in April. Manufacturing index is likely to surge to 38 in May, from its prior reading of 36.1. Sales of existing houses in the US, which fell 8.5% to an adjusted annual rate of 5.27 million units in March, are expected to tumble 18.9% in April.

Investors will be assessing the coronavirus situation, with the number of cases exceeding the 5-million mark globally. The US has confirmed over 1,551,850 covid-19 cases with around 93,430 deaths.

Other Markets: European indices were trading lower at 9am GMT, with the FTSE 100, German 30 and French 40 down by 0.5%, 1.2% and 1.3%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

South Africa’s value of building plans passed and interest rate decision, Turkey’s interest rate decision, Russia’s industrial production, Brazil’s Federal tax revenues, Argentina’s consumer confidence, Canada’s new housing price index and ADP employment change as well as the US natural gas stocks change.

 

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