Target Selling Off Despite Strong Quarter

Retail superstar Target Corp. (TGT) is trading lower by more than 3% in Wednesday’s pre-market despite beating Q3 2021 top and bottom line estimates. The company posted a profit of $3.03 per-share, $0.22 better than expectations, while revenue rose a healthy 13.2% year-over-year to $25.29 billion, more than $500 million higher than consensus. Store comparative sales increased 9.7%, adding to 9.9% growth in the same quarter last year.

Firing on All Cylinders

Digital comparative sales jumped 29%, marking a major deacceleration compared to the astounding 155% growth posted in Q3 2020. Target now expects to book “high-single digit to low-double digit” comparative sales growth in the fourth quarter, raising guidance from previous expectations for high-single digit growth. The full-year operating income margin rate is expected to be 8% or higher, reflecting strong management of skyrocketing wages and supply chain disruptions.

Target CEO Brian Cornell commented on the quarterly results, admitting he expects supply chain challenges to continue well into 2022 but believes the company is well-positioned for a strong holiday season. He notes that employee retention has improved as Americans slowly settle into the best job market in decades. And, although he insists there is a commitment to “provide great value during inflation”, he failed to make specific predictions on profit margins going forward.

Wall Street and Technical Outlook

Wall Street consensus stood at an ‘Overweight’ rating ahead of the report, based upon 20 ‘Buy’, 3 ‘Overweight’, 7 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $235 to a Street-high $337 while the stock is set to open Wednesday’s session about $24 below the median $285 target. The sell-the-news reaction after a solid quarter and healthy guidance suggests those results were already baked into the stock price.

Target broke out above 4-year resistance in the 80s in July 2019 and entered a powerful uptrend that accelerated after a deep dip in March 2020. The stock nearly tripled in price into the July 2021 high at 267.06, yielding a 40-point pullback into October, followed by a recovery wave that exceeded the prior high by less than two points this week. The post-news reaction matches a bearish volume divergence, with many shareholders using the latest uptick to dump positions. The 50-day moving average near 250 marks the first downside target in this selling wave.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.