Target (NYSE:TGT) is projected to announce a decline in same-store sales for the holiday quarter, marking its third consecutive quarterly decrease, when it releases its results on Tuesday.
However, investors remain optimistic that Target, known for its diverse range of products spanning from affordable apparel to household appliances, could witness a resurgence in sales and profits in 2024 as inflation eases, providing consumers with more purchasing power for discretionary items.
Analysts estimate a 4.6% drop in comparable sales for the holiday quarter and a 3.6% decline for the full year, according to LSEG estimates. Looking ahead, Target’s sales for 2024 are forecasted to increase by approximately 1%, as indicated by LSEG data, aligning with the Commerce Department’s recent report on gradually cooling inflation.
To combat competition from online retailers like PDD Group’s (NASDAQ:PDD) Temu and Shein, Target is targeting bargain-conscious shoppers. In January, the company launched “dealworthy,” a new line featuring 400 products ranging from apparel to electronics, priced as low as $1.99.
Moreover, Target has strategically stocked items such as beauty and food & beverage products to encourage repeat purchases, according to analysts at Jane Hali & Associates.
Charles Sizemore, chief investment officer of Sizemore Capital Management, expressed keen interest in observing potential shifts in consumer behavior, highlighting the anticipation for a rebound in spending on discretionary items after a prolonged period of constrained spending.
Target’s shares have shown upward momentum, rising by 38% since its third-quarter results announcement in November.
In 2023, Target faced controversies over its Pride merchandise and inventory losses attributed to organized retail crime. Despite these challenges, analysts and investors anticipate Target to outline strategies to achieve its targeted EBIT margin of 6% in 2024, up from 3.5% in 2022 and matching its 2019 level.
However, potential disruptions such as late merchandise arrivals and rising container costs stemming from Red Sea disturbances could temper margin improvements, cautioned Citi analyst Paul Lejuez.
Analysts are also eager to learn if Target’s retail media arm, Roundel, experienced growth similar to Walmart’s retail media business, Walmart Connect, which generated $3.17 billion in ad revenue.
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