Shares of TGT rose on Wednesday after the retailer reported stronger-than-expected quarterly earnings and raised its full-year sales outlook, signaling that its turnaround strategy is beginning to gain traction despite ongoing macroeconomic uncertainty.
Target stock gained about 1.5% in premarket trading to $129.18 after the company posted first-quarter adjusted earnings of $1.71 per share on revenue of $25.4 billion.
Analysts surveyed by FactSet had expected earnings of $1.47 per share on sales of $24.7 billion.
The retailer also raised its annual net sales growth forecast to around 4%, up from its previous guidance of 2%.
The results marked Target’s strongest comparable sales growth in four years and represented the first quarter under new Chief Executive Officer Michael Fiddelke, who succeeded Brian Cornell in February.
Comparable sales rebound as turnaround efforts gain traction
Target reported comparable sales growth of 5.6% during the quarter ended May 2, far exceeding Wall Street expectations of roughly 2.5% growth and ending four consecutive quarters of declines.
The company saw sales growth across all six of its core merchandise categories, a sharp improvement from the prior year when five categories posted declines.
Sales in toys grew at a double-digit pace after the retailer expanded lower-priced offerings below $10, while food and beverage sales climbed 6% following the introduction of 3,000 new food items.
Digital sales also accelerated, rising 8.9% during the quarter, supported partly by a 27% increase in same-day deliveries through Target’s Circle 360 membership program.
Gross margin expanded about 85 basis points year over year to 29%, while adjusted operating margin improved to 4.5%.
“Despite our updated guidance, we’re maintaining a cautious outlook, given the work we know we have in front of us, and ongoing uncertainty in the macroeconomic environment,” Fiddelke said during a media call.
Analysts said the results reflected improving execution as Target works to regain market share from rivals, including Walmart, Amazon, Costco Wholesale, TJX Companies, and Ross Stores.
Investments in stores and merchandise support recovery
Under Fiddelke’s leadership, Target has increased investments aimed at improving inventory availability, pricing, store operations, and merchandising appeal.
The company plans to spend an additional $2 billion this year to improve product availability and reduce prices on thousands of items as consumers remain pressured by elevated fuel costs and inflation concerns tied partly to the Middle East conflict.
Target has also expanded premium product offerings, including newly introduced baby boutiques in roughly 200 stores and upcoming beauty studios expected to launch in nearly 600 stores later this year.
The retailer is also preparing a major revamp of its food and beverage assortment and broader updates across its home goods category.
Separately, analysts pointed to improving customer traffic and stronger digital fulfillment capabilities as additional positives.
“Target sits in a middle ground of retail – not the cheapest, not the go-to place for any one thing,” said Morningstar analyst Brett Husslein.
Analysts remain optimistic despite cautious outlook
Several Wall Street firms responded positively to the results and upgraded expectations for the company’s turnaround.
RBC Capital reiterated its Outperform rating and $132 price target after Target exceeded expectations across sales, margins, and earnings.
“Q1 results delivered on a high bar, but revised guidance implies a slowdown throughout the remainder of the year,” said RBC analyst Steven Shemesh.
Jefferies analyst Corey Tarlowe described the latest quarter as a “meaningful inflection” for the company.
“While skepticism around durability is likely to remain near term, the combination of improving traffic, multiple growth drivers, and a raised outlook increases our confidence,” Tarlowe wrote.
Meanwhile, Gordon Haskett analyst Chuck Grom said, “Expectations were high, but Target checked every box and we expect the stock’s momentum to continue.”
Despite the stronger quarter, management maintained a cautious tone as consumers continue navigating inflation pressures and higher fuel costs.
Target now expects adjusted earnings per share toward the upper end of its prior forecast range of $7.50 to $8.50 for the full fiscal year.
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