Target Nails the Bullseye on Outsized Earnings Beat

Key Points

• Target is one of the largest general merchandise retailers in the United States, operating 1,956 locations.
• Target owns over 45 private label brands for apparel, merchandise, toys, groceries, wine and spirits, generating nearly $30 billion in annual sales.
• Target beat Q4 2023 EPS consensus estimates by 56 cents, sending soaring by 15% to new 52-week highs.

Minneapolis, Minnesota-based Target Co. NYSE: TGT is a major general merchandise retailer operating 1,956 stores in the United States. Its typical locations are around 135,000 square feet, and its small-format City Target stores are around 80,000 square feet. The retail/wholesale sector giant offers a wide range of products, from apparel, electronics, household products, home décor, and beauty products to groceries, including fresh produce, meats, and frozen and packaged foods.

Target’s earnings reaction stood out from its peers Walmart Inc. NYSE: WMT and Costco Wholesale Co. NASDAQ: COST, as shares soared nearly 15% on its fiscal Q4 2023 earnings report to new 52-week highs. Same-day services, including in-store pickup, drive-up, and Shipt, rose 13.6% YoY, generating 10% of total sales.

Cashing in on its Private Label Brands

Like its retail competitors, Target is a large purveyor of private-label merchandising. These brands range from All in Motion activewear, Art Class children's apparel, Boots & Barkley pet supplies to Casaluna bedding products, Embark camping gear, the Gigglescape toy brand, Goodfellow & Co. men’s apparel, and Market Pantry food items. Target also owns private-label wine and spirits brands, including California Roots, Casa Cantina, Jingle and Mingle, SunPop, and Wine Cube.

Billion-dollar store brands

Together, Target owns more than 45 different store brands that generate nearly $30 billion in annual sales. Its Cat & Jack, Threshold, and Good & Gather are three of 11 private label brands that generate $1 billion or more in sales annually. Private label brands carry much heftier profit margins, costing consumers less money, as grocery giant The Kroger Co. NYSE: KR can attest.

Target Hits the EPS Sweet Spot.

Target reported its Q4 2023 EPS of $2.98, beating consensus analyst estimates of $2.42 by 56 cents. Revenues rose 1.6% YoY to $31.47 billion versus $31.83 billion consensus estimates.  

For full-year 2023, Target grew its EPS by 50% to $8.94. Operating margins rose 200 bps to 5.3%. Operating income rose $2 billion compared to 2022. Cost savings efficiency sales were over $500 million. Cash from operations grew more than 100% YoY to $8.6 billion from $4 billion in 2022. Get AI-powered insights on MarketBeat.

In-line Guidance

Target issued in-line guidance for Q1 2024 EPS of $1.70 to $2.10 versus $2.09 consensus analyst estimates. Comparable sales are expected to decline 3% to 5% in the quarter. Full-year 2024 EPS is expected between $8.60 and $9.60 versus $9.17 consensus estimates. Comparable sales are expected to grow between flat and 2%. Target paid out $508 million in dividends in Q4 2023 compared to $497 million in the year-ago quarter.

Growing its Collaborations and Partnerships

Target continues to grow its decade-long collaborations with major brands like Apple Inc. NASDAQ: AAPL, Starbucks Co. NASDAQ: SBUX and The Walt Disney Co. NYSE: DIS. New partnerships with Magnolia, CBS, Levi’s, Hearth & Hearth and Ulta Beauty Inc. NASDAQ: ULTA store-within-a-store have driven sales and loyalty.

CEO Insights

Target CEO Brian Cornell noted that customers responded to newness, value and inspiration from the ease of digital and in-store shopping experience. Cornell plans to continue investing in strengths and differentiators responsible for delivering strong performance, including its Target Circle membership program. This is the free loyalty program that provides 1% cash back purchase rewards that can be used towards personalized exclusives and discounts and voting for charitable causes that Target supports. It has replaced its previous rewards program called Cartwheel in 2019.

Cornell plans to remodel its stores and open nearly 300 stores in the next decade. Cornell concluded, “Discovery and inspiration have always been a hallmark of our shopping experience. We started by providing inspiration and easy access at our stores with no barriers between impulse and purchase. But we see an opportunity to do even more, to think differently about the intersection of physical, digital, and social so consumers can discover Target products wherever they're spending their time.”

Target analyst ratings and price targets are at MarketBeat. The MarketBeat stock screener can also help you find Target's peers and competitor stocks.

 

Daily Ascending Triangle Breakout   

The daily candlestick chart on TGT illustrates an ascending triangle breakout pattern. The lower ascending trendline formed on the $123.96 gap from its Q3 2023 earnings release on November 15, 2023. The flat-top resistance format at $142.68 tested multiple times as the daily market structure low (MSL) buy triggered the $139.73 breakout.

TGT was able to stage a rally up to $154.77 heading into its Q4 2023 earnings release, which resulted in a price gap to $165.21 on March 5, 2024, as shares rose to a high of $175.53 before peaking out. The daily relative strength index (RSI) bounced and peaked at the 80-band as it headed back down toward the overbought 70-band. Pullback support levels are at $165.21, $160.80, $154.77 and $150.09.