Target is set to release its fiscal fourth-quarter earnings on Tuesday, providing investors with insight into whether the retailer has successfully driven more full-price sales of discretionary merchandise, a key revenue generator for the company. According to consensus estimates from LSEG, analysts are expecting earnings per share of $2.26 and revenue of $30.8 billion. Despite raising its fourth-quarter sales forecast in January, Target maintained its profit outlook after cutting it in November, signaling that earnings are likely to decline.
The company’s decision to keep profit guidance unchanged, despite stronger-than-expected holiday traffic, suggests that it relied heavily on promotions and discounts to boost sales, which could weigh on margins. Target has faced challenges in attracting consumers to discretionary items amid persistent inflation, high interest rates, and stiff competition from online discounters and Walmart. This shift has been more reflective of Target’s execution issues than broader macroeconomic concerns. In contrast, Walmart has seen strength in discretionary sales and gained traction with higher-income shoppers, who are typically more resilient during economic downturns.
In November, Target significantly lowered its profit guidance following its largest earnings miss in two years. While some of the pressure stemmed from costs related to preparing for a short-lived port strike in October, the majority was attributed to weaker sales of discretionary goods, which carry higher margins than essentials like groceries.
Target has found success when introducing new, eye-catching merchandise, such as trendy workout gear, pet accessories, or seasonal food flavors. For instance, customers responded positively to All In Motion leggings priced at $25, as well as redesigned bras from its Auden intimates line. Chief Commercial Officer Rick Gomez emphasized that when Target offers stylish, on-trend products at affordable prices, consumers are willing to shop.
To build on this momentum, Target has announced partnerships with Champion and Warby Parker, set to launch in the second half of 2025. As part of the multiyear deal with Champion, Target will offer an exclusive line of sportswear designed for lounging rather than gym use. With Warby Parker, Target plans to open five shop-in-shops and sell the eyewear brand’s products online, with a broader rollout planned for next year. These collaborations aim to attract shoppers with fresh merchandise, bring in new customers, and position Target to compete more effectively against rivals. However, it may take time for these initiatives to yield results.
— news from CNBC