=Target (TGT) reported earnings on Tue 28 Feb 17 (b/o)

Target misses by $0.06, reports revs in-line; guides Q1 and FY18 EPS well below consensus :

• Reports Q4 (Jan) earnings of $1.45 per share, excluding non-recurring items, $0.06 worse than the Capital IQ Consensus of $1.51; revenues fell 4.3% year/year to $20.69 bln vs the $20.69 bln Capital IQ Consensus, reflecting a 1.5 percent decline in comparable sales combined with the removal of pharmacy and clinic sales from this year's results.
  • Comparable digital channel sales grew 34 percent and contributed 1.8 percentage points of comparable sales growth.
  • Segment earnings before interest expense and income taxes (:EBIT), which is Target's measure of segment profit, were $1,344 million in fourth quarter 2016, a decrease of 13.5 percent from $1,554 million in 2015. Fourth quarter EBITDA and EBIT margin rates were 9.5 percent and 6.5 percent, respectively, compared with 9.8 percent and 7.2 percent, respectively, in 2015.
  • Fourth quarter gross margin rate was 26.9 percent, compared with 27.9 percent in 2015, reflecting markdown pressure from promotional and clearance activity and costs associated with the mix shift between the Company's store and digital channels, partially offset by the benefit of the sale of the Company's pharmacy and clinic businesses, a favorable merchandise mix, and cost of goods savings.
• Warned  on Jan 18: Guided Q4 EPS $1.45-1.55 vs. $1.65 consensus; comps (1.5)-(1%).
• Co issues downside guidance for Q1, sees EPS of $0.80-1.00, excluding non-recurring items, vs. $1.33 Capital IQ Consensus Estimate.
• Co issues downside guidance for FY18, sees EPS of $3.80-4.20, excluding non-recurring items, vs. $5.33 Capital IQ Consensus Estimate. 
• Target's 2017 guidance reflects the impact of the Company's transition to a new financial model, which will be covered in the Company's meeting with the financial community later today.
• Under the current program, the Company invested $264 million in the fourth quarter, leaving ~$4.7 billion remaining under the current program at the end of the quarter.
• "Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores," said Brian Cornell, chairman and CEO of Target. "At our meeting with the financial community this morning, we will provide detail on the meaningful investments we're making in our business and financial model which will position Target for long-term, sustainable growth in this new era in retail. We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years. In addition, we will invest in lower gross margins to ensure we are clearly and competitively priced every day. While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term."

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