It has been about a month since the last earnings report for Target (TGT Quick QuoteTGT - Free Report) . Shares have lost about 6.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Target due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Target’s Q1 Earnings Miss Estimates, Margins Hit Hard

Target Corporation came up with first-quarter fiscal 2022 results, wherein the top line beat the Zacks Consensus Estimate and grew year over year. Comparable sales increased for the 20th successive quarter, gaining from growth in both store and digital channels. However, supply-chain bottlenecks and higher freight costs continued to hurt margins, and in turn the bottom line. The quarterly earnings missed the consensus mark and fell sharply from the year-ago period. Consequently, management trimmed the fiscal 2022 operating margin rate.

Sales & Earnings Picture

Target reported adjusted earnings of $2.19 per share that fell short of the Zacks Consensus Estimate of $3.00 and declined 40.7% from the year-ago period.

The big-box retailer generated total revenues of $25,170 million that increased 4% year over year and beat the Zacks Consensus Estimate of $24,528 million. We note that sales jumped 4% to $24,830 million, while other revenues rose 6.7% to $340 million.

Stores fulfilled more than 95% of the company’s sales in the quarter. Same-day services (Order Pick Up, Drive Up and Shipt) grew approximately 8%, led by Drive Up, which grew in the mid-teens. Same-day services accounted for well over half of first quarter digital sales.

Target registered sturdy performance in food & beverage, essentials and beauty categories. Food & beverage as well as Beauty registered low double-digit growth in sales. Essentials grew in the high single digits. Apparel, Home and Hardlines witnessed small declines in comparable sales.

Meanwhile, comparable sales for the quarter under discussion increased 3.3%, backed by 3.9% jump in the number of transactions. Average transaction amount fell 0.6%. Again, comparable store sales grew 3.4%, while comparable digital sales increased 3.2%.

Target’s debit card penetration contracted 50 basis points (bps) to 11.6%, while credit card penetration increased 30 bps to 8.7%. Total REDcard penetration declined to 20.3% from the year-ago quarter’s 20.5%.

Margins

Gross margin decreased 430 basis points to 25.7%, reflecting costs related to freight, supply chain bottlenecks, and increased compensation and headcount in distribution centers. Again, higher markdown rates owing to inventory impairments and measures taken to address softer-than-anticipated sales in discretionary categories hurt margin as well. Meanwhile, operating margin shriveled 450 basis points to 5.3%, and came well below management’s expectations.

Other Financial Details

During the quarter, Target paid dividends of $424 million. This reflected an increase of 32.4% in the dividend per share. The company entered into an accelerated repurchase plan in the first quarter, which will result in the retirement of up to $2.75 billion of stock by the time the plan settles in June. The company also repurchased shares worth $10 million, thereby retiring 0.1 million shares at an average price of $208.60. At the end of the quarter, excluding the outstanding Accelerated Share Repurchase of $2.75 billion, the company had roughly $12.3 billion remaining under its share-buyback program approved in August 2021. Management expects total repurchases this year to be lower than the $7 billion the company returned in fiscal 2021.

The company ended the quarter with cash and cash equivalents of $1,112 million, long-term debt and other borrowings of $13,379 million and shareholders’ investment of $10,774 million. Management incurred capital expenditures of just under $1 billion, and remains on track to spend $4-$5 billion for fiscal 2022.

Outlook

Management envisions second-quarter fiscal 2022 operating margin rate to be centered around first quarter's operating margin rate of 5.3%.

Target reaffirmed low-to-mid-single digit revenue growth in fiscal 2022. However, it now foresees fiscal operating margin rate to be centered around 6% down from the earlier projection of 8% or higher.

Brian Cornell, CEO of Target said, “Despite these near-term challenges, our team remains passionately dedicated to our guests and serving their needs, giving us continued confidence in our long-term financial algorithm, which anticipates mid-single digit revenue growth, and an operating margin rate of 8 percent or higher over time.”

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -81.37% due to these changes.

VGM Scores

Currently, Target has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Target has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.