Target (TGT) Up 7.3% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Target (TGT). Shares have added about 7.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Target due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Target Misses Q3 Earnings & Sales Estimates, Issues Cautious Q4 View

Target Corporation reported third-quarter fiscal 2024 results, with the top and bottom lines falling short of the Zacks Consensus Estimate. While revenues saw a slight increase, earnings took a significant hit compared to the prior year due to cost pressures.

This Minneapolis, MN-based company posted comparable sales growth, but the pace slowed considerably from the preceding quarter. While comparable store sales declined, the drop was more than offset by an increase in comparable digital sales.

In response to lower-than-expected results, Target revised its fiscal 2024 earnings forecast downward. The retail bellwether also offered a cautious outlook for the final quarter, leading to a drop in Target’s shares during the pre-market trading session.

Target’s Quarterly Performance: Key Metrics and Insights

Target reported adjusted earnings of $1.85 per share, which missed the Zacks Consensus Estimate of $2.29 and declined from $2.10 reported in the year-ago period.

The big-box retailer generated total revenues of $25,668 million, which came below the Zacks Consensus Estimate of $25,910 million. However, the metric improved 1.1% on a year-over-year basis. We note that sales rose 0.9% to $25,228 million, while other revenues jumped 11.5% to $440 million. 

Meanwhile, comparable sales rose 0.3% in the third quarter, following a 2% increase in the preceding quarter. The metric reflected a decline of 1.9% in comparable store sales but an increase of 10.8% in comparable digital sales. 

While traffic improved by 2.4%, the average transaction amount declined by 2%. Target saw beauty comparable sales increase by more than 6%, while the Food & Beverage and Essentials categories grew in the low-single digits year over year.

The gross margin contracted 20 basis points to 27.2%. This can be attributed to higher digital fulfillment and supply-chain costs resulting from increased inventory levels, a rise in digital sales volume and new supply-chain facilities coming online. These were partly mitigated by lower book-to-physical inventory adjustments and the net effect of merchandising activities compared to the previous year. The operating margin shrunk to 4.6% from 5.2% in the corresponding period last year.

Target’s Financial Health Snapshot

Target ended the quarter with cash and cash equivalents of $3,433 million, long-term debt and other borrowings of $14,346 million and shareholders’ investment of $14,489 million. During the quarter, Target paid out dividends of $516 million.

Target repurchased 2.4 million shares worth $354 million during the quarter under review. At the end of the quarter, the company had about $9.2 billion remaining under the repurchase program approved in August 2021.

A Sneak Peek Into TGT’s Outlook

Target anticipates comparable sales to be flat in the fourth quarter of fiscal 2024. Both GAAP and adjusted earnings for the final quarter are expected to fall in the range of $1.85-$2.45 per share compared with $2.98 reported in the year-ago period.

However, Target now anticipates GAAP EPS and adjusted earnings for the fiscal year in the band of $8.30-$8.90 per share compared with the $8.94 reported in fiscal 2023. Earlier, the company had guided earnings between $9.00 and $9.70.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -18.31% due to these changes.

VGM Scores

Currently, Target has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Target has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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