Target soars on Q4 results: Key takeaways from retail earnings

Shares of Target (TGT) closed 12% higher after the retailer posted fourth-quarter results that topped Wall Street estimates. Target, like many other retailers, benefited from cost cuts and improved inventory levels.

Watch the video above to find out what other takeaways Yahoo Finance Executive Editor Brian Sozzi has from the retail earnings released so far.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Stephanie Mikulich.

Video Transcript

JOSH LIPTON: One retail stock is standing out to the upside, and that would be Target. That stock is jumping on earnings ahead of the open. Yahoo Finance Executive Editor Brian Sozzi is here with his takeaways for the day. Brian.

BRIAN SOZZI: Yeah, this quarter really hit the bull's eye, make that gong sound, or blow out the football whistle. Nonetheless, one of the top three tickers on the Yahoo Finance platform today, up double digits, not the normal session for a discounter like Target. But really, what Target did here, hit a lot of really important notes. First, last year, they revealed that they cut $500 million in costs out of their business. Really boosted profit margins in a year that sales were absolutely in the tank. Why? People didn't shop at the toy aisles or bought a big-screen TV. Nonetheless, Target said that.

And then, on top of that, they held a closely watched New York City investor day, said they're going to launch a membership program that takes aim at Amazon Prime and Walmart+. $49 a year, I believe, gets you same-day free delivery, gets lots of analysts on Wall Street, I'm sure, excited. They're going to generate millions of dollars in Costco-like membership fee income. I caution people to just think before you start modeling that in because it doesn't happen overnight.

And then, lastly, Target also came out and said they will be opening hundreds of stores throughout the next decade, about 30 this year, 30 next year. And they will continue at this pace. That is a number a lot of folks in the street, I don't think baked in for Target. Because they haven't been opening up stores at that pace over the past few years.

JULIE HYMAN: And they're going to be bigger stores, as I understand it too. I mean, this reminds me of, like, what was it, seven, eight years ago, where Target did their last like, we're making the stores more beautiful, we're re-merchandising,--

BRIAN SOZZI: Aren't they great? They are beautiful.

JULIE HYMAN: --we're re-refreshing. But, like, it's just interesting. It feels a little bit like we're back to the future here when it comes to Target in that sense.

BRIAN SOZZI: Yeah, let me toss up my takeaways because I think there's some broader themes you brought up here, Julie. One, within retail. And we'll get some more retail earnings this week, Nordstrom, some discounters, whatever it is you'll find in our platform. But a lot of cost cuts, a lot of retailers cut a ton of costs last year from their operating model, and now that is starting to weave through their financial statements and really boost margins. Check, done, that's good. Inventory levels for Target down 12% year-over-year. Inventory levels throughout a lot of retailers that reported, like Walmart, down. Lowe's inventory down. Home Depot, inventory down. That helps keeps costs low.

And what you mentioned, store openings, it's not just a Target thing. Home Depot, of, all places, opening 12 hulking super centers this year to sell lumber and plywood to various people. I know I believe you have the Trex-- CEO of Trex coming on,

JOSH LIPTON: We do.

BRIAN SOZZI: I saw him in the green room. I think that is a very good thing for that company as well. Home Depot opening up more stores to sell flooring. Lowe's opening up stores. Walmart opening and remodeling hundreds of stores. These retailers, even if the consumer is under pressure, are finding new ways to unlock growth. And shareholders are simply eating all this stuff up.

JOSH LIPTON: Let me ask you this, Brian Sozzi. As you sift through these earnings reports, you listen to these calls, you talk to these executives, you're a viewer right now, and you're a retail investor. Where do you want to commit capital? Where do you want to play? Do you want to play low-income consumer, high-income consumer?

BRIAN SOZZI: I'm going to try to confuse everybody. I think you want to try to play the high-income consumer and look through the prism of where are they shopping. They are, in fact, shopping at Walmart. I will just add before I get flagged by various people, I'm not telling you to go out and buy Walmart shares. I'm telling you what I heard from Walmart's earnings call just about two weeks ago. They are telling you right off the bat, a higher-income household is going to Walmart. They no longer view Walmart as a dumpy place to buy home goods. They no longer view Walmart as a-- not a good alternative compared to a Kroger. And they want to give them more of their money. And I think that's how you do it. That's why Walmart shares have outperformed the past year. And they're just really operating very well right now under CEO Doug McMillon. I hope I didn't confuse anybody.

JOSH LIPTON: No, strong take.

JULIE HYMAN: I won't tell you--

JOSH LIPTON: Strong passionate take.

BRIAN SOZZI: And remember, I didn't tell you to go out and buy Walmart. So don't flag me on X, saying I told you to buy Walmart. This is just analysis real-time.

JULIE HYMAN: Where do you shop, Brian Sozzi?

BRIAN SOZZI: I actually-- I go to Target. I'm still a Target guy.

JULIE HYMAN: I'm still a target girl.

BRIAN SOZZI: I like finding my--

JULIE HYMAN: Wait. Are we agreeing?

BRIAN SOZZI: Its "tar-jhey."

JULIE HYMAN: Are we agreeing?

BRIAN SOZZI: I really want to try very hard to always disagree with you because it's just natural. And it just makes for better segments. But I have to agree with you. Target it's just a fun place to shop. They have my Beyond Meat meatballs. They have maybe a T-shirt that I need for $9. And I'm OK with all that. I'll give Target more of my money.

JULIE HYMAN: They also I got to say. The kid's clothing, I still go there sometimes for the kid's clothing.

BRIAN SOZZI: Wait, can I ask you a question? I'm going to ask you a question. Are you signing up for the new Target membership program? Do you need that in your life?

JULIE HYMAN: No.

BRIAN SOZZI: OK. And I think that's very telling. And I think that answer, right there, if you're an analyst, you're modeling millions of dollars for Target.

JULIE HYMAN: After Julie Hyman's shopping preference.

BRIAN SOZZI: That is the average American shopper right there. Listen to Julie Hyman. She's not signing up for--

JOSH LIPTON: Typing Julie Hyman in spreadsheets all over Wall Street, right now.

JULIE HYMAN: I don't know that I'm the typical American shopper. But I appreciate your vote of confidence in modeling it after me.

BRIAN SOZZI: It's a real honor to be here. Thank you.

JULIE HYMAN: Thank you. Thanks so much.

JOSH LIPTON: Thank you, Sozzi.

JULIE HYMAN: Always appreciate it.