Target Corp. (NYSE: TGT) Earnings Preview: Two Factors Will Depress Numbers

Target Corp. (NYSE: TGT) will report Q4 2013 earnings Wednesday morning. Look for two recent events to depress TGT's numbers - which means if markets react negatively, investors can buy this solid retailer at a discount.

Wall Street expects Target Corp. to report fourth-quarter earnings per share (EPS) of $0.80 on revenue of $21.46 billion, up $0.56 from the previous period, but down from $1.47 on revenue of $22.73 billion when compared to a year ago in the same period.

For the full-year, the Street expects $3.18 per share in earnings on revenue of $72.64 billion, compared to $4.38 per share and $73.30 billion in sales in full-year 2012.

Both quarterly and full-year estimates have slipped in the past couple of months. On Jan. 10, Target Corp. itself cut its fourth-quarter guidance by $0.30 per share to a range of $1.20 to $1.30 per share. It forecasted holiday sales to fall 2.5% compared to the same quarter a year ago and comparable sales to drop 2% to 6% for the rest of Q4.

TGT's last quarter got slammed by two unfortunate developments - that could hit earnings and cause the stock to slump this week - but long term, its stock still looks good.
Here's the story.

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TGT Earnings Factor No. 1: Target Corp.'s Cybersecurity Woes

On Dec. 19, the retail giant announced a cybersecurity breach that included payment data for around 40 million customers who had used credit or debit cards at their stores between Nov. 27 and Dec. 15.

A few weeks later on Jan. 13, Target amended upward the number of those affected by 70 million, for a total of 110 million customers impacted overall. It also announced the breach included home addresses, email addresses, names, and phone numbers for the additional 70 million.

As a result, TGT stock fell as much as 1.9% in morning trading that day, marking its largest drop since the original Dec. 19 breach declaration.

Target said that while its sales were stronger than expected before the breach occurred, it's experienced "meaningfully weaker-than-expected sales" following the January announcement; however, Target confirmed numbers were rising of late.

Last week, we learned TGT's breach has so far cost more than $200 million for banks and financial institutions to replace credit and debit cards, according to the Consumer Bankers Association and the Credit Union National Association last week. That estimate does not include costs associated with fraud.

To top off its cybersecurity woes, Target, along with retail competitors like Wal-Mart Stores Inc. (NYSE: WMT) and J.C. Penney Co. Inc. (NYSE: JCP), has suffered a horrendous overall U.S. retail season.

On Feb. 13, U.S. retail sales - which account for 70% of economic activity - unexpectedly fell 0.4% for the month of January according to the Commerce Department. The decline marks the second straight drop after a 0.1% fall in December.

The report showed that Americans are presently spending less on clothing and that retailers experienced soft holiday sales at the end of 2013; the report even retroactively downgraded November and December retail sales numbers.

Foul weather is the main culprit behind the U.S. retail sales decline over the past few months.

"The weakness we saw in retail sales is unfortunately weather-related and we are clearly seeing that the first quarter growth is slower than we anticipated," chief market strategist for Rockwell Global Capital Peter Cardillo said to Reuters.

The December cybersecurity breach is a one-time incident, and Target has proven itself proactive in its response. It's implemented a zero-liability policy and free credit monitoring services for a year to those who had their data compromised.

Besides, data breaches are becoming an expected, everyday occurrence in the news of late (e.g., Snapchat on New Year's Day; Neiman Marcus on Jan. 11; Kickstarter.com and Forbes.com last week.) Target's breach will soon be regarded as one of the unfortunate many.

Meanwhile, the bad retail season has impacted Target's competitors much the same as it's potentially impacted Target. Wal-Mart missed Q4 2013 earnings on Thursday on the challenging retail environment. J.C. Penney is expected to report soft numbers as well in its earnings release after Wednesday's closing bell.

Meanwhile, Target experienced strong Black Friday sales and recently unveiled plans to expand further in Canada. TGT's long-term earnings per share (EPS) growth forecast is over 10%, with a return on equity of nearly 15%, an operating margin greater than the industry average, and a dividend yield of 3.1%.

TGT remains a solid retailer - and one that investors can nab at a discount, should the stock drop with Wednesday's earnings.

Target's shares moved an average of 3.5% - either up or down - over its past eight earnings reports.

The general merchandiser and food-seller has an average rating of "Hold," and an average price target of $67.48.

Target stock presently sits at $56.46 per share, with a 52-week low of $54.66 and a high of $73.50.

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