Target Earnings Due After Key Rival Brings Holiday Cheer

Target's earnings report, due Wednesday, comes on the heels of Walmart's strong holiday performance. Analysts expect Target's revenue to rise nearly 2% to $25.89 billion, with profit up to $1.05 billion. Discretionary spending trends, like apparel and beauty sales, have been improving, with Target noting "meaningful" growth in these categories last quarter. This could drive earnings above expectations, as it did for Walmart. However, inflation and retail crime challenges may impact Target's performance.

Target's focus on value and same-day services has been instrumental in driving its earnings trajectory. Despite a dip in holiday sales, Target's earnings surged due to a smaller-than-expected sales decline and robust Black Friday and Cyber Monday spending. The company's emphasis on value, as noted by Bank of America analysts, positions it well to gain market share, even though it has not historically benefited from the same value perception as its large broadline peers like Walmart and Costco Wholesale. Target's same-day services, such as Drive-up, which accounted for more than 10% of total sales in the quarter, have also contributed to its earnings growth. Looking ahead, Target's CEO Brian Cornell stated that the company will focus on rolling out new products and services, including a new Target Circle membership program, to reignite sales, traffic, and market share gains in 2024. Target's earnings outlook for 2024 expects adjusted earnings between $8.60 to $9.60 per share, with annual comparable sales expected to be in a range of flat to up 2%.



Geopolitical dynamics, particularly trade tensions and inflation, significantly impact Target's earnings and analyst expectations. Trade tensions, such as those between the U.S. and China, can disrupt supply chains and increase costs, potentially impacting Target's profit margins. Inflation, as seen in recent years, can limit consumer spending on discretionary items, which account for 50% of Target's revenue. Analysts expect Target's sales and profit to rise narrowly year-over-year, with revenue expected to bump nearly 2% to $25.89 billion, and profit to rise to $1.05 billion, or $2.28 per share. However, these expectations may be tempered by geopolitical headwinds.

Target's value proposition has historically lagged behind Walmart and Costco, but recent efforts to lower prices on thousands of popular products have positioned it to gain market share. Bank of America analysts note that Target's focus on value could help it attract price-sensitive consumers, especially those impacted by inflation. Target's strategy to roll out daily and weekly deals through the holiday season further enhances its value proposition.

Target's same-day services and product launches have been instrumental in driving sales and enhancing customer loyalty. In the recent quarter, same-day pickup services like Drive-up accounted for over 10% of total sales, demonstrating their popularity among consumers seeking convenience. Additionally, the introduction of new collections such as Kendra Scott jewelry and private-label Figmint kitchenware has attracted shoppers and contributed to robust holiday-quarter sales. These initiatives, coupled with Target's commitment to rolling out new products and services, including a new Target Circle membership program, indicate a strategic focus on reinvigorating sales, traffic, and market share gains in 2024.

Target's new membership program, Target Circle, is a strategic move to boost customer retention and market share. By offering exclusive deals, discounts, and early access to products, Target Circle incentivizes loyalty and encourages repeat purchases. This program is particularly appealing to price-sensitive consumers, who are increasingly seeking value in their shopping experiences. With Target Circle, the retailer aims to differentiate itself from competitors and capitalize on the growing trend of paid membership programs, similar to Amazon Prime and Walmart Plus. By focusing on rolling out new products, services, and membership programs, Target is poised to reignite sales, traffic, and market share gains in 2024.

Target's holiday quarter earnings, reported on Feb. 7, 2023, showed a 4.4% decline in comparable sales, beating analysts' expectations of a 4.6% drop. Earnings per share of $2.98 also surpassed estimates of $2.42. This performance suggests that consumers, despite inflation pressures, maintained spending on discretionary items, which account for 50% of Target's revenue. The company's robust Black Friday and Cyber Monday sales, along with new product launches like Kendra Scott jewelry and the Figmint kitchenware line, contributed to this resilience. Target's focus on same-day pickup services, such as Drive-up, also drove sales, with these services making up more than 10% of total sales in the quarter. Looking ahead, Target expects adjusted earnings between $8.60 to $9.60 per share and comparable sales to be flat to up 2% in 2023, indicating a positive outlook for consumer spending and Target's market position.