All eyes are on the state of the consumer ahead of Target's (TGT) fiscal fourth-quarter earnings report and investor day on Tuesday, February 28.
Analysts are watching for any shifts in consumers' spending habits amid economic uncertainty, a shift to spending on groceries over discretionary items, and how the big-box retailer is managing inventory levels after having to implement markdowns and promotions last year.
Here's what Wall Street expects from Target, based on Bloomberg consensus data:
Revenue: $30.46 billion expected
Adjusted earnings per share: $1.48 expected
Same-store sales: -1.74% expected
Brick & mortar same-store sales: -2.80%
On a two-year stack, analysts expect same-store sales at Target to be up 5.37%. In January 2023, visits were up 4.0% compared to last January per foot traffic platform Placer.ai, higher than that of Walmart (down 4.5%), Costco (down 5.2%), BJ's Wholesale Club (down 6.2%) and Sam's Club (down 3.3%).
This comes as consumers are "becoming a little bit more intentional with their dollar," Corey Tarlowe, Jefferies equity analyst told Yahoo Finance. In Tarlowe's latest note, he told investors to expect results similar to those of Walmart's (WMT) latest earnings.
"We expect TGT's results will look similar to WMT's, with better-than-expected sales, more gross margin pressure than predicted, and solid operational expenditure leverage in the store."
Jefferies has a Buy rating and $191.00 price target.
A possible risk is that not all shoppers see Target as a go-to discount retailer, Bank of America analyst Robert Ohmes said in a note. While favorable in terms of price, "it may not have the same consumer perception of being a low-price retailer that is afforded to others," he said.
Bank of America reiterated its Neutral rating, noting the retailer's "strong omni-channel positioning and discount store decade exposure will likely be overshadowed by discretionary pressures."
BofA says "sticky food inflation" could cause consumers to spend more money on food and less on items like electronics, home, and apparel. The firm has a $180.00 price target.
Inventory is top of mind as well. Bank of America expects $850 million of year-over-year gross margin pressures this quarter, "predominantly driven by higher clearance and promotional markdown rates (as TGT works to clear through excess inventory by year end) as well as higher merchandising costs and continued freight headwinds."
Labor is also in focus. Ongoing wage pressures, as other retailers increase their minimum wage, is one item that could cause full margin recovery to be a "bit more elongated," said Credit Suisse, which has a $160.00 price target and Neutral rating on the stock, in a note to investors.
Target (TGT) announced a new starting wage range of $15 to $24 last February.
Other items that could risk from full margin recovery, Credit Suisse said, include a shift in consumer behavior, continued markdowns as consumer seek value, recession risk, a shift in spending to food, an ongoing theft problem which accounted for $400 million in extra profit loss last year, and "the structural nature of some supply chain pressures."
"Headwinds certainly seem to offset tailwinds, so we hope TGT strikes a cautious tone, so we would become much more constructive on TGT as the company guides conservatively on operating margin trajectory," the note said.
Year-to-date shares of Target are up nearly 14% and down 15 percent from a year ago. As of Monday, there are 23 Buys, 15 Holds and 0 sells on the Street.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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