Target Earnings Preview: Retailer to Offers Clues on Affects of the Trade War
Target Earnings Preview: Retailer to Offers Clues on Affects of the Trade War
Last week, Walmart warned it would have to raise prices within months to compensate for tariffs
- Target is expected to report earnings before the market open on Wednesday.
- Traders are looking for warnings from executives about price increases or supply chain problems.
- The company’s stock is down about 27% from the start of the year, but the technical structure has improved after a period of consolidation.
Big box retailer Target (TGT) is scheduled to announce its fiscal first quarter earnings on Wednesday before the market open. The company’s stock was trading 0.5% lower amid a broader pullback in the market.
The market will be scrutinizing the announcement for clues on how the U.S. trade war is likely to weigh on consumer spending.
While the recent pause in tariffs between the US and China offered some relief to financial markets, the tangible impact on consumer spending could weigh on Target’s quarter and its outlook.
Walmart (WMT) reported last week, and warned that the company would have to raise prices within months to compensate for tariffs. Trump pushed back publicly on this, and it’s unclear if the recent pause with China will alleviate the pressure to raise prices.
Target could send a similar warning, which the market would likely view as a negative. Higher prices would stress consumers at a time when the economy is already slowing.
What do analyst expect?
According to TradingView, analysts expect Target to post earnings per share (EPS) of $1.64 for the first quarter. That would be down from $2.03 a year ago. It would also represent a decline from last quarter’s $2.41, although that was the holiday quarter.
Revenue is expected to cross the wires at $24.28 billion. That would be down slightly from $24.53 billion last year. Target posted revenue of $30.91 billion last quarter.
Trading Target earnings
Target traded today with an implied volatility rank (IVR) of 73. That means volatility is elevated compared to the past twelve months of trading.
The options market expects a move of +/- 9.33 points, or 9.54%, of the current 97.85 stock price. That is on the upper range of the average 5% to 10% earnings move for S&P 500 companies. Traders looking for Target to remain within that expected range could take advantage of a strategy that would benefit from the reduction in volatility following its earnings announcement. For example, a trader with a bearish outlook on Target stock could sell a call spread with the short option at the expected move near 107.
Technically, Target stock is down about 27% since the start of the year. It’s been trading below its 50-day simple moving average (SMA) since early February.
However, prices have started to consolidate around the 9- and 21-day exponential moving averages (EMAs), which are now upward sloping after a period of consolidation from the April swing lows. A break above the 50-day SMA may help to establish more strength if earnings impress.
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Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. #@fxwestwater
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