Target is preparing to report its quarterly earnings as the retailer attempts to rebound from a prolonged period of declining sales and profits. According to a survey of analysts by LSEG, Wall Street expects earnings per share (EPS) of $2.18 and revenue of $25.21 billion for the Minneapolis-based company.
Target, recognized for its wide selection of trendy yet affordable merchandise, has faced challenges as consumers cut back on discretionary spending, opting to allocate more funds toward essential expenses like food and housing. This shift has led to a decline in the company’s comparable sales for the past four quarters. The comparable sales metric, which excludes one-time factors like store openings and closures, is a key indicator of retail performance. Despite the recent downturn, Target’s leadership expressed optimism in May, stating that they expect a return to sales growth in the second quarter. They projected that comparable sales for the entire year would range from flat to an increase of 2%, with adjusted EPS estimated between $8.60 and $9.60.
In response to the challenging retail environment, Target has taken steps to boost sales and attract more customers. In May, the company announced price reductions on approximately 5,000 frequently purchased items, including essential goods like diapers, milk, and paper towels. Additionally, Target revamped its loyalty program earlier this year and introduced Target Circle 360, a new paid membership offering perks such as free same-day deliveries. In July, Target also launched its own sales event, aiming to compete with Amazon’s Prime Day.
The back-to-school season is another significant opportunity for Target, as families typically purchase new shoes, clothes, backpacks, and school supplies during this time. Positive consumer spending trends in July, with retail sales rising 1% month-over-month according to the U.S. Department of Commerce, could further benefit the retailer.
However, Target faces strong competition from big-box rival Walmart, which recently exceeded Wall Street’s expectations and reported solid consumer spending. Unlike Target, which generates only 23% of its revenue from groceries, Walmart’s U.S. business derives about 60% of its revenue from this category. This difference in sales mix, coupled with Walmart’s growing market share among higher-income households, poses a potential threat to Target’s recovery efforts.
As of Tuesday, Target’s stock closed at $144.33, up about 1% year-to-date, lagging behind the S&P 500’s approximately 17% gain over the same period.
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