Target
wrapped up a challenging 2023 with a top-and-bottom line beat—and kicked off its new fiscal year by announcing plans to open 300 stores and launch a new paid membership program.
The stock jumped 12% in midmorning trading to $167.99, on pace for its largest close since April 2023. The retailer’s shares have gained 12% over the past three months through Monday’s close, keeping pace with the
S&P 500.
Over the next decade, Target aims to open more than 300 stores, and invest in remodeling its roughly 2,000 existing store fleet, the company said Tuesday. The stores are expected to drive “billions of dollars in incremental growth,” CEO Brian Cornell said at the company’s annual investor day Tuesday.
Target is also adding a new tier to its existing loyalty program, Target Circle. Target Circle 360 members will have unlimited same-day delivery for orders over $35 and free two-day shipping, among other perks. Members who use Target’s credit card, now called the Target Circle Card, will have free two-day shipping, and extended return windows.
Target Circle 360 will launch at $49 a year if new members sign up before May 18. After that date, the cost rises to $99 a year. Target credit card holders will be able to sign up for $49 a year.
The company will continue to offer its free membership tier.
Other growth initiatives include expanding existing private label brands and introducing new ones, such as dealworthy, a value-focused brand Target launched in February.
Total revenue will grow by 4% annually or more over the next decade on average, Target said, while the company’s long-term operating margin rate will be 6% or higher. Earnings per share will grow by high-single digit percentages on an annual basis, the company projects.
In 2025 and beyond, capital expenditures will range between $3.5 billion and $5.5 billion.
Target also reported fourth-quarter earnings Tuesday. The company’s adjusted net earnings jumped 57.8% year over year to $1.38 billion, or $2.98 per diluted share, topping analysts’ expectations for $2.42, according to FactSet.
As in Target’s previous quarter, the company reaped the benefits of having leaner inventories as it recovers from the overstocking that dinged profitability in the second half of 2022. Pared-down warehouses means Target doesn’t have to mark down items as aggressively as it has in the past two years, padding the bottom line.
Lower freight and shipping costs boosted profitability as well, the company said, as did broad-based efficiency efforts that Target says helped save over $500 million over the course of the year.
The company also is seeing a modest rebound in top-line growth. Revenue for the quarter rose 1.7% from a year ago to $31.9 billion, ahead of expectations for $31.8 billion.
The increase, while slight, breaks a losing streak for Target. For the past two quarters, revenue fell on an annual basis as inflation crimped consumer demand, shoplifting increased, and the company got swept up in the culture wars.
“Our team’s efforts changed the momentum of our business, further improving our sales and traffic trends in the fourth quarter while driving profitability well ahead of expectations,” said CEO Brian Cornell.
Comparable-store sales in the quarter fell 4.4% year over year, in line with projections for a 4.5% decline.
The company predicts comparable sales will be in the red throughout the current fiscal quarter, projecting a decline of 3% to 5%. Demand could pick up in the latter half of the year, however. Target’s full-year outlook sees comparable sales flat to up 2% as store visits start to tick up.
First-quarter earnings per share will range from $1.70 to $2.10, while full-year earnings per share will range from $8.60 to $9.60, Target said. The midpoints of those earnings-per-share ranges, $1.90 and $9.10 for the first quarter and year, respectively, are lower than the Street’s forecast earnings per share of $2.08 for the first quarter, and $9.15 for the year.
“We think F4Q results and guidance were better than feared,” wrote Stifel analyst Mark Astrachan in a note Tuesday. “Guidance anticipates a sequential improvement through F2024. This is largely consistent with our expectations that discretionary spending intentions are improving, including amongst lower income households.” Astrachan rates Target stock at Hold with a $153 target price.
Heading into Target’s investor event, analysts were listening for indications on whether the company saw any improvements in demand for discretionary items, such as electronics and home décor. These categories carry higher margins than groceries, and comprise the bulk of Target’s business—but inflation had crimped demand in the past few years. Consumers’ wallets are still stretched, executives said, but the company is seeing some green shoots in demand.
“[Consumers] are balancing a lot and having to make trade-offs to meet the needs of their families, while sprinkling in the occasional luxuries,” said Christina Hennington, Target’s chief growth officer. “And yet, their affinity for style and newness, plus early signs of disinflation, contributed to a sequential uptick in discretionary category performance over the last few quarters, something we aim to build on and accelerate.”
Write to Sabrina Escobar at [email protected]
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