Target shares jump as retailer unveils paid membership program to rival Walmart, Amazon
Target on Tuesday reported higher holiday-quarter earnings on a smaller-than-expected sales decline and predicted that annual comparable sales would come in largely above Wall Street expectations, sending its shares up 12%.
The mass merchandiser is banking on same-day services, product launches and a new membership program to boost spending at its stores.
Target plans to launch a membership feature called Target Circle 360 next month, which would offer shoppers unlimited same-day delivery, CEO Brian Cornell said on an earnings call.
Target reported adjusted earnings of $2.98 per share in the fourth quarter, compared to $1.89 per share in the same period a year earlier. Analysts on average expected $2.42 per share, according to LSEG estimates.
Total comparable sales in the November to January period fell 4.4% compared with the 4.6% decline analysts were expecting, in part due to a sales recovery on Target.com.
Online sales fell 0.7% during the fourth quarter, an improvement from the 6% decline in the previous quarter.
Robust Black Friday and Cyber Monday spending helped drive holiday-quarter sales, the company said, and shoppers gravitated to newly-launched collections such as Kendra Scott jewelry and its private-label Figmint line of kitchenware.
Shoppers also responded to same-day pickup services, such as Drive-up, which made up more than 10% of total sales in the quarter, the company said.
Over the next decade, Target expects to open more than 300 US stores and remodel 2,000 existing ones, the CEO added.
Consistent results
“(The) biggest takeaway is now back-to-back strong quarters, which is exactly what the market wants to see out of Target – consistency, which is an adjective that has been elusive for the company over the past 2-3 years,” said Dave Wagner, portfolio manager at Aptus Capital Advisors.
Target Circle 360 program will be launched at a special membership price of $49 for five weeks starting April 7, allowing shoppers same-day delivery for orders over $35, Target said. The minimum order threshold was on par with Walmart’s Walmart Plus program.
The quarter marks the end of a challenging year for Target. During the second quarter, Target reported its first decline in store visits and comparable sales since before the pandemic as inflation limited Americans’ spending on discretionary items, which accounts for 50% of Target’s revenue.
Commerce Department data showed that prices on a basket of goods and services continued to tick up in January.
The chain also faced unique challenges including a backlash in May over its LGBTQ-themed merchandise and a surge in retail crime that it said led to the closure of nine stores.
Bigger rival Walmart said last month that inflation is driving shoppers to hunt for value on everyday goods, though there are signs that discretionary spending is picking up.
The new loyalty program, along with Target’s focus on rolling out new products and services would help reignite sales, traffic and market share gains in 2024, Cornell added.
“We spent most of last year, watching consumers shift their consumption patterns towards services versus goods. That consumption pattern seems to be normalizing back to a healthy balance of both goods and services this year,” said Art Hogan, chief market strategist at B Riley Wealth.
Target introduced its earnings outlook for 2024 of adjusted earnings between $8.60 to $9.60 per share.
The midpoint of that range was largely in line with analysts’ expectations of $9.14 per share, according to LSEG data.
Annual comparable sales are expected to be in a range of flat to up 2% this year, compared to analysts’ average expectations of a 0.86% rise.
Gross margins in the fourth quarter ended Feb. 3 rose to 25.6%, from 22.7% a year earlier, aided by lower freight and supply-chain costs, healthy inventory and lower markdowns.
Target shares closed at $168.58 and are up 18% this year.
