Target is anticipated to report its third consecutive quarterly drop in same-store sales for the holiday quarter when it announces its results on Tuesday, marking a potential 4.6% decrease for the quarter and a 3.6% yearly decline, as per LSEG estimates.
Despite this, there’s optimism that Target can enhance sales and profits in 2024 due to moderating inflation, which could encourage consumer spending on non-essential items.
The Minneapolis-based retailer, known for a broad range of products from affordable clothing to home appliances, is looking at a slight 1% sales increase in 2024, in line with cooling inflation trends reported by the Commerce Department.
Target faces stiff competition from Temu and Shein, prompting it to launch “dealworthy,” a new budget-friendly product line, in January.
This strategy, alongside its focus on products encouraging repeat customer visits, is part of its effort to attract cost-conscious consumers.
Investors and analysts, including Charles Sizemore of Sizemore Capital Management, are keenly watching for shifts in consumer behavior, especially after a period of reduced discretionary spending.
The optimism is partly buoyed by Target’s stock performance, which has seen a significant rise since its third-quarter report.
2023 was challenging for Target, dealing with controversies over its Pride merchandise and inventory losses attributed to organized retail crime, leading to its first quarterly drop in store visits since the pandemic’s onset.
However, with declining freight rates and a reduction in thefts, there’s anticipation that Target could achieve a 6% EBIT margin target in 2024, an improvement from 3.5% in 2022.
Analysts are curious about Target’s EBIT margin outlook and its retail media arm, Roundel, which could mirror Walmart’s success in ad revenue growth.
Walmart’s retail media platform saw a substantial increase in margins, partly due to a boost in ad sales.
The performance of Target’s Roundel, which generated significant ad revenue, will be closely watched as an indicator of its competitive standing and potential for margin improvement amidst logistical challenges and rising costs due to disruptions in the Red Sea.