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Wall Street JournalIs Target Stock a Buy or Sell After Its Latest Q4 Earnings Report?
Target Corporation TGT released its fourth-quarter fiscal 2024 results last Tuesday before the opening bell, sparking fresh debate among investors regarding the stock's future trajectory. As a well-established player in the retail sector, Target has long been recognized for its adaptability to evolving consumer trends and shifting economic landscapes.
However, with the latest earnings now on the table, investors are faced with a crucial decision: Should they increase their stake, maintain their current positions or sell the stock?
Target’s Q4 Performance: Key Takeaways
Target posted better-than-expected fourth-quarter results, with modest comparable sales growth and strong digital momentum. However, margin pressures, rising costs and intensifying competition remain key challenges. (Read: Target Beats on Q4 Earnings, Issues Cautious View on Tariff Concerns)
The general merchandise retailer reported net sales of $30,915 million, marking a 3.1% decline year over year due to one fewer week of sales compared to 2023. However, comparable sales rose 1.5% in the fourth quarter, following a 0.3% increase in the preceding quarter. The metric reflected a decline of 0.5% in comparable store sales but an increase of 8.7% in comparable digital sales.
While sales showed resilience, margins remain under pressure. The gross margin contracted 40 basis points to 26.2%. This can be attributed to higher digital fulfillment and supply-chain costs as well as higher promotional and clearance markdown rates. These were partly mitigated by the net benefit of other merchandising activities. The operating margin shrunk to 4.7% from 5.8% in the corresponding period last year.
While Target has achieved more than $2 billion in cost savings over the past two years, it still has work to do to strengthen margins.
How Consensus Estimates Stack Up for Target Post Q4 Earnings
Target issued a cautious first-quarter fiscal 2025 view. The Minneapolis, MN-based retailer anticipates significant year-over-year profit pressure in the first quarter compared to the rest of the year owing to ongoing consumer uncertainty, a slight decline in February net sales, tariff concerns and the expected timing of certain expenses throughout the fiscal year.
The company achieved record sales during Valentine’s Day in February, but overall monthly performance was subdued. Unseasonably cold weather across the United States impacted apparel sales, while weakening consumer confidence led to softer demand for discretionary items.
For fiscal 2025, Target provided cautious guidance, anticipating net sales growth of around 1% with flat comparable sales. The company expects a modest improvement in the operating margin. Target projected adjusted earnings in the range of $8.80-$9.80 per share compared to $8.86 in 2024.
The Zacks Consensus Estimate for earnings per share has seen downward revisions. Over the past seven days, analysts have lowered their estimates by 9 cents to $9.19 for the current fiscal and 6 cents to $9.94 for the next fiscal.
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Can Target's Strategy Secure a Bright Future for Investors?
Target is leveraging its strong brand presence, diverse product portfolio and expanding e-commerce capabilities, alongside a growing store footprint, to solidify its market position and drive sustainable growth. By prioritizing innovation and integrating AI technology, the company is laying a solid foundation for long-term success. Target has outlined a comprehensive strategy to generate more than $15 billion in revenue growth by fiscal 2030.
Seamlessly blending physical stores with a robust digital platform, Target has enhanced the customer shopping experience. The company plans to open 20 new stores and remodel several existing locations in fiscal 2025. Its focus on same-day delivery, curbside pickup and personalized online services has bolstered its competitive edge against industry leaders such as Amazon AMZN, Walmart WMT and Dollar General DG. Same-day services powered by Target Circle 360 grew more than 25% during the final quarter of fiscal 2024. Target Circle membership grew by 13 million new members in 2024.
Target's multi-category assortment of owned and popular national brands cements its status as a one-stop shopping destination. The retailer has adeptly navigated evolving consumer preferences by expanding its offerings across both discretionary and essential categories. Innovations in high-demand segments underscore TGT's proactive approach to addressing customer needs, while its balanced product mix continues to attract a broad customer base. Target’s $31 billion private label portfolio is a competitive advantage.
Target’s third-party marketplace, Target Plus, surpassed $1 billion in gross merchandise volume (GMV) in fiscal 2024. The company projects this platform to generate $5 billion in GMV within the next five years, significantly broadening its product assortment. Target’s advertising business, Roundel, generated nearly $2 billion in fiscal 2024 and is expected to double in size within five years.
To boost efficiency, Target is modernizing inventory management with AI-driven solutions that optimize stock availability and delivery speed. The company is also introducing new package delivery solutions that leverage existing supply-chain assets and its Shipt service, ensuring faster and more reliable order fulfillment. Target remains committed to innovation and customer satisfaction, striving to deliver unique shopping experiences while maintaining value. The company plans to invest $4 billion to $5 billion in store remodels, supply-chain expansion and digital transformation in fiscal 2025.
Target Stock’s Valuation Post Q4 Earnings
Target is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 12.16X, which positions it at a discount compared to the industry’s average of 30.04X. The stock is also trading below its median P/E level of 14.93, observed over the past year. This suggests that TGT stock is priced attractively relative to its peers and historical levels, positioning it as a potential bargain.
TGT Looks Attractive From a Valuation Standpoint
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However, Target's stock has experienced a 12.3% drop over the past month, which may have contributed to its discounted trading status. This decline indicates broader challenges as well as specific issues affecting Target's performance.
TGT Stock Past One-Month Performance
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How to Play TGT Stock?
Considering Target’s fourth-quarter performance and cautious outlook, investors may find it prudent to maintain their current position in the stock. While the company faces short-term challenges, Target’s strong brand, expansive product portfolio and effective e-commerce strategy provide a solid foundation for future growth. TGT currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).