Target (NYSE: TGT) investors had a great week. Their stock jumped 13% through early Friday trading compared to a 1% increase in the wider market, according to data provided by S&P Global Market Intelligence. That rally added to a great year so far for owners of the retailing giant, whose shares are up 20% to date. Zooming out, though, the stock has underperformed the S&P 500 by a wide margin in the past year, rising just 4% while the index gained 27%.
This week's spike was powered by good news on the earnings front.
Good earnings news
Target announced Q4 results before the market opened on Tuesday, and Wall Street liked what it saw. Sure, comparable-store sales fell for yet another quarter. That's unfortunate given that more diversified retailers like Walmart are growing steadily. But Target's customer traffic metric improved to a less-than-2% loss from 4% in the prior quarter. This success showed that the new merchandising strategy of emphasizing value is working.
Meanwhile, Target continues to take big positive steps on earnings. Operating profit margin has essentially fully rebounded from the post-pandemic slump and is now back to the 6% rate that shareholders saw back in 2019. It's great news for the business that Target can achieve that margin even when sales are declining. It potentially could push toward 8% of sales, then, once the consumer discretionary industry stabilizes.
Looking ahead
Management is projecting an end to the sales slump that has pressured this stock for more than a year. Comps will fall by as much as 5% in Q1, they explained, but will likely rebound throughout the rest of 2024. Management is calling for comps to land at about 1% growth this year after falling 4% in fiscal 2023.
Now comes the hard part of executing that growth turnaround. There are plenty of factors, including shifts in consumer spending habits, that could delay or even derail that rebound. But Target does seem to be on the cusp of returning to customer traffic growth in 2024, likely clearing the way toward much stronger annual earnings ahead.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.
