On Wednesday, Telsey Advisory Group maintained its Outperform rating on Target Corporation (NYSE:TGT) with a steady price target of $195.00. The retailer posted first-quarter 2024 results that showcased an in-line comparable sales decline of 3.7%, but a slight miss on earnings per share (EPS), reporting $2.03 against the FactSet consensus of $2.06 and Telsey’s estimate of $2.10.
Despite a 4.8% dip in store comparable sales, Target saw a resurgence in digital sales, which grew by 1.4%, driven by a 9.0% surge in same-day services, including a 13% increase in Drive Up service usage. This digital momentum raised the company's online sales penetration to 18.3%, up from 17.5% the previous year.
The first quarter of 2024 revealed mixed performance across different categories at Target. While discretionary categories faced ongoing pressure, beauty products outperformed, and there was a notable sequential improvement in apparel sales, which jumped approximately 400 basis points from the fourth quarter of 2023.
The operating margin for the quarter saw a slight increase of 4 basis points to 5.3%, supported by a substantial gross margin expansion in the retail segment. The gross margin increase of 142 basis points to 27.7% was attributed to cost improvements, a favorable product mix, and reduced book to physical inventory adjustments, although this was partially balanced by heightened promotional markdowns.
The total selling, general, and administrative (SG&A) expense ratio, however, experienced a 144 basis point deleverage to 23.6%. This was due to a combination of lower sales and increased expenditures on labor and marketing.
Nevertheless, Target reported a healthy inventory status at the end of the first quarter, with a 7.0% decrease compared to a 3.1% drop in sales. This position is anticipated to bolster profitability in the upcoming periods.
InvestingPro Insights
Target Corporation's (NYSE:TGT) resilience is highlighted by its ability to sustain dividend growth, with a commendable track record of increasing dividends for over five decades. This consistency is a testament to the company's financial stability and commitment to shareholder returns. According to InvestingPro Tips, Target is not only a prominent player in the Consumer Staples Distribution & Retail industry but is also trading at a low P/E ratio relative to near-term earnings growth, which could indicate an attractive valuation for investors seeking growth at a reasonable price.
Delving into the InvestingPro Data, Target boasts a market capitalization of $72.07 billion and maintains a P/E ratio of 17.36, which aligns with its earnings report. Although revenue showed a slight decline over the last twelve months as of Q4 2024, with a -1.57% change, the company's gross profit margin remains strong at 27.63%. This financial health is further underscored by a robust dividend yield of 2.82%, reinforcing the company's investor-friendly approach. Notably, Target's share price is currently at 85.72% of its 52-week high, and analysts have set a fair value target at $190, which is higher than the InvestingPro fair value estimate of $169.14, suggesting room for potential upside.
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