Target Corporation (TGT): Turnaround Continues to Gain Momentum
Earlier this year, the stock was viewed as a laggard compared to Walmart. That narrative has changed dramatically. Over the past 12 months, Target has gained 41%, compared with Walmart’s 20%. Since early March, when shares traded around $120, the stock has climbed roughly 15% and now trades around $138, just 3% below its 52-week high of $143.
The improving stock performance is being supported by stronger business fundamentals.
In the first quarter, Target delivered its largest revenue beat since November 2021. Net sales increased 6.7% year over year to $25.4 billion, while comparable sales rose 5.6%, marking the company’s first positive comparable sales growth in five quarters.
Even more encouraging, the gains were driven by higher customer traffic rather than price increases. Store traffic climbed 4.4%, digital sales grew 8.9%, and same-day delivery surged more than 27%. All six of Target’s core merchandise categories posted year-over-year growth, suggesting improvement across the business instead of strength in only a few areas.
Profitability is also moving in the right direction. Gross margin expanded to 29.0% from 28.2%, helped by higher-margin businesses including the company’s Roundel retail media network and Target Plus marketplace, where gross merchandise value increased nearly 60%.
Management’s confidence is growing as well. The company raised its full-year sales outlook to approximately 4% growth, an increase of two percentage points from prior guidance, and now expects earnings per share to finish at the high end of its $7.50 to $8.50 guidance range.
Target is also investing aggressively for future growth. The retailer opened its 2,000th store during the quarter, has more than 100 remodels underway, plans to introduce Target Beauty Studio to more than 600 locations this fall, and is rolling out its largest food and beverage assortment refresh in more than a decade. Capital expenditures are expected to reach $5 billion this year, more than $1 billion higher than last year as those investments ramp up.
Another potential catalyst arrives on Aug. 19, when the company reports earnings. Current consensus estimates call for earnings per share of $2.21, up 7.8% year over year, on revenue of $26 billion, an increase of 3.2%. Management has also indicated it expects stronger profit growth during the second half of the year as investments begin to pay off and cost-saving initiatives accelerate.
Shareholder returns could receive another boost as well. Although buybacks were paused during the first quarter, Target still has $8.3 billion remaining under its current repurchase authorization, and management has indicated buybacks could resume later this year alongside another dividend increase.
After several difficult years, Target appears to be gaining traction operationally while the market is beginning to recognize the turnaround. With improving sales, expanding margins, continued investments and additional catalysts ahead, we believe the company is well positioned to build on its recent momentum.
