Investors looking for clues on the struggling U.S. retail landscape should tune in to Target Corp.'s (NYSE: TGT) earnings when the company reports today before the bell.
April marked the slowest growth in retail sales of the year, growing at a morbidly slow 0.1% compared to 0.7% in March. The major categories that led to the decline were building materials, clothing, and department store sales.
Economists cite the drop off from record warm weather during the previous three months as a catalyst for the sluggish growth.
However, it seems like Washington is taking the easy way out by blaming the weather and possibly an early Easter for the decline.
What seems to be more of an issue here is the fact that the consumer environment remains a very tough arena to sustain growth in right now.
That sets the stage for Target.
When Target reports its earnings this morning it will give investors a better idea of where consumer spending is headed following a slow spring.
Target (NYSE: TGT) Earnings Expectations
Target estimates earnings per share of $1.01 compared to 90 cents a year ago. The increase is due to expanding into food and other merchandising areas that deviate from its original discount offerings.
This expectation has increased over the past three months from 96 cents a share.
Even if earnings beat expectations, the results might not be enough to comfort investors who see a fragile economy and a consumer who is unwilling to spend even with lower gas prices.
Over the past three years Target stock has risen from below $40 per share to a high of $60 and currently trades at $55 per share. Less-than-stellar earnings reports will only add to the concern for Target and the overall retail industry.
Investors will be paying close attention to the remarks made by Target's executives in order to gather information on how consumers are spending and if those habits have changed.
According to data from the Commerce Department, consumer spending - which accounts for 70% of the U.S. economy - grew at a 2.9% annual rate last quarter, its highest level since the fourth quarter of 2010.
That kind of spending growth will be hard to sustain given the recent slowdown in job growth. Just 115,000 jobs were added last month, the lowest number since October.
What makes matters worse is that unemployment fell due to more people giving up their search for a job rather than finding one.
This data does not bode well for Target, which is desperately trying to remain a leading discount retailer. When Target first introduced trendy clothes and chic décor to its discount offerings the strategy proved successful. But since the Great Recession sales have been tepid at Target as consumers look elsewhere for discounts.
Target is taking some bold steps to compete with its rivals including offering dog biscuits and other items not found at rival stores.
Another daring move is the decision to phase out Amazon's Kindle e-reader from its more than 1,700 stores and Website in order to set up an Apple section in certain Targets. Currently only 25 stores plan to open up a mini Apple-product section this year.
Target investors will also want to know how other initiatives have worked, including their 5 percent discount to customers who use Target credit and debit cards.
Overall, Target's earnings should give a good indication on the health of consumer spending and a glimpse at the state of the U.S. economy.
Related Articles and News:
- Money Morning:
Does the Showroom Effect Spell Trouble for Amazon (Nasdag: AMZN)? - Money Morning:
Target Corp. (NYSE:TGT) Has Dethroned Wal-Mart as the Discount King - Bloomberg News:
U.S. Retail Sales Cool After Warm-Weather Spree: Economy