Just in time for a proxy fight showdown, Target's management posted some good news â€" or at least put some decent news in the best possible light â€" when it released its April financial results.
Better yet, it was able to garner a double vote of confidence from analysts. J.P. Morgan Securities and Credit Suisse revised their ratings on Target shares from neutral to "overweight" and "outperform" respectively.
In performance terms, the highlight of the month was a return to positive comparable store sales, which gained 0.3 percent. Monthly comps hadn't advanced since June of last year. Credit Suisse mentioned Target's ability to drive traffic through initiatives on price, product presentation and expanding food operations in announcing its upgrade. Among its other efforts, Target is experimenting with a program at its Minneapolis and Medina, Minn. stores that has it price matching other retailers.
From the larger business perspective, the company's credit card portfolio, which it half owns, showed greater stability. That was enough for J.P. Morgan, which sited lower bad debt expense in the credit card business as it upgraded Target shares.
Critical to the company's proxy fight with William Ackman, head of the Pershing Square investment firm, its third-largest shareholder, the April financials announcement includes a declaration that Target's first quarter financial results, to be released May 20, should be better than anticipated. "We expect first quarter earnings per share results to be well above the current median First Call estimate of 52 cents," said Gregg Steinhafel, Target's CEO.
That's particularly important because Target's quarterly earnings announcement comes just about a week before its annual meeting when the proxy battle comes to a head. Then, shareholders will decide if Ackman's slate of five board members will win election. Pershing Square is hosting what it calls a town meeting today to convince investors that its board slate is a group of independent thinkers, even of Ackman. It should be noted, though, that each comes with an expertise that could help Ackman advance his goals for Target, including spinning off part of its real estate portfolio, selling the remaining interest in the company's credit cards and further accelerating the food operation expansion. Ackman also will try to convince investors that his ideas will enhance Target's long-term value and will not simply bail out declining investments he made in the company.
Stronger than expected first quarter results may dampen whatever impact Ackman's meeting has. Ackman's assertions that his slate of board candidates is independent of his agenda might be stretching credibility. He might not control them, but he recruited them. Yet, Target's contentions about the strength if its April financials are a bit overstated as well. The 0.3% monthly comp gain was short of the 0.4% analysts anticipated, and the credit card portfolio results were simply in line with expectations. Certainly, Target's first quarter earnings announcement will be something more than typical as management takes a turn to stump for its own position.
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