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What Target Earnings State About the U.S. Consumer
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Target (TGT - Free Report) delivered fiscal fourth-quarter earnings results before the market open on Tuesday, beating analysts’ estimates on both the top and bottom lines. The latest big-box retailer to report solid Q4 figures, Target benefitted from strong consumer spending during the quarter on essentials like food and household staples.
The Minneapolis-based retailer reported adjusted earnings of $1.89/share, handily exceeding the Zacks Consensus Estimate of $1.39. The figure represented an earnings surprise of 35.97%. Revenues of $31.4 billion increased 1.3% year-over-year and also surpassed estimates. Target shares were up more than 3% in the early going Tuesday morning.
Despite a challenging environment late last year, same-store sales grew 0.7% against estimates of a -1.74% decline. Comparable same-store sales at brick-and-mortar locations shot up 1.9% versus a -2.8% anticipated drop.
Target management echoed similar sentiment to other large retailers during recent earnings calls. CEO Brian Cornell stated that while the team was pleased with the sales growth, the macroeconomic backdrop continues to be a “very challenging environment.” Companies are expecting consumer spending to soften and are preparing for a potential recession.
But the better-than-expected results from Target and other major retailers begs the question: are companies underestimating the strength of the U.S. consumer?
Consumer Spending is Strong – And Will Likely Remain That Way
Most consumers spend money out of their wages, so incorporating the employment picture gives us a good idea of what to expect in terms of spending. As more people become employed, overall income in the economy increases, driving more spending. Employment growth has been stellar as of late, with January delivering a 517,000 nonfarm payrolls boost.
In addition to employment, the National Bureau of Economic Research (NBER), the official arbiter of recessions and expansions here in the U.S., also likes to look at real personal income less transfers as a primary determinant. And as we can see below, real personal income remains quite strong:
Image Source: St. Louis Federal Reserve
Consumers also still have plenty of savings left over in the post-pandemic era. With inflation continuing to subside (particularly due to energy prices falling), the consumer looks to be in good shape in 2023.
And as consumption makes up about 70% of the U.S. economy, a strong consumer puts a dent into the recession headline we’ve all been hearing. The latest Q1 estimate via the Atlanta Fed’s GDPNow model forecasts a 2.8% GDP gain. This is very solid growth in a historically weak first quarter, and we have strong consumer spending and factory production to thank for it.
Are Retailers like Target a Buy?
It makes sense that management at these chain retailers are cautious, as mistakes were made in 2022 that they don’t want to repeat again. Retailers need just the right amount of merchandise or they risk losing sales. But it appears they are on the right trajectory. While Cornell is mindful of the short-term obstacles, he remains focused on Target’s long-term strategy.
“We’re planning our business cautiously in the near-term to ensure we remain agile and responsive to the current operating environment. As we plan for the year ahead, we will continue to make robust capital investments and pursue efficient opportunities in support of our long-term growth.”
Target is a member of the Zacks Retail – Discount Stores industry, which currently ranks in the top 44% out of approximately 250 industry groups. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform over the next 3 to 6 months.
Quantitative research studies have shown that approximately half of a stock’s future price appreciation is due to its industry grouping. By focusing on top stocks within leading industries, we can dramatically improve our odds of success.
Target is a Zacks Rank #3 (Hold) and has outperformed this year with a greater than 15% gain. The company looks to put last year’s string of earnings misses in the past, and resume what was a long history of beats.
As we look ahead to the current fiscal year, analysts are expecting Target to achieve earnings growth of 66.8% to $9.21/share. Sales are projected to climb 2.55% to $111.18 billion.
While retail management remains cautious about the outlook this year, a strong consumer along with healthy economic activity bode well for the remainder of 2023.
Disclaimer: Target is a long-term holding in the Zacks Income Investor portfolio.
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What Target Earnings State About the U.S. Consumer
Target (TGT - Free Report) delivered fiscal fourth-quarter earnings results before the market open on Tuesday, beating analysts’ estimates on both the top and bottom lines. The latest big-box retailer to report solid Q4 figures, Target benefitted from strong consumer spending during the quarter on essentials like food and household staples.
The Minneapolis-based retailer reported adjusted earnings of $1.89/share, handily exceeding the Zacks Consensus Estimate of $1.39. The figure represented an earnings surprise of 35.97%. Revenues of $31.4 billion increased 1.3% year-over-year and also surpassed estimates. Target shares were up more than 3% in the early going Tuesday morning.
Despite a challenging environment late last year, same-store sales grew 0.7% against estimates of a -1.74% decline. Comparable same-store sales at brick-and-mortar locations shot up 1.9% versus a -2.8% anticipated drop.
Target management echoed similar sentiment to other large retailers during recent earnings calls. CEO Brian Cornell stated that while the team was pleased with the sales growth, the macroeconomic backdrop continues to be a “very challenging environment.” Companies are expecting consumer spending to soften and are preparing for a potential recession.
But the better-than-expected results from Target and other major retailers begs the question: are companies underestimating the strength of the U.S. consumer?
Consumer Spending is Strong – And Will Likely Remain That Way
Most consumers spend money out of their wages, so incorporating the employment picture gives us a good idea of what to expect in terms of spending. As more people become employed, overall income in the economy increases, driving more spending. Employment growth has been stellar as of late, with January delivering a 517,000 nonfarm payrolls boost.
In addition to employment, the National Bureau of Economic Research (NBER), the official arbiter of recessions and expansions here in the U.S., also likes to look at real personal income less transfers as a primary determinant. And as we can see below, real personal income remains quite strong:
Image Source: St. Louis Federal Reserve
Consumers also still have plenty of savings left over in the post-pandemic era. With inflation continuing to subside (particularly due to energy prices falling), the consumer looks to be in good shape in 2023.
And as consumption makes up about 70% of the U.S. economy, a strong consumer puts a dent into the recession headline we’ve all been hearing. The latest Q1 estimate via the Atlanta Fed’s GDPNow model forecasts a 2.8% GDP gain. This is very solid growth in a historically weak first quarter, and we have strong consumer spending and factory production to thank for it.
Are Retailers like Target a Buy?
It makes sense that management at these chain retailers are cautious, as mistakes were made in 2022 that they don’t want to repeat again. Retailers need just the right amount of merchandise or they risk losing sales. But it appears they are on the right trajectory. While Cornell is mindful of the short-term obstacles, he remains focused on Target’s long-term strategy.
“We’re planning our business cautiously in the near-term to ensure we remain agile and responsive to the current operating environment. As we plan for the year ahead, we will continue to make robust capital investments and pursue efficient opportunities in support of our long-term growth.”
Target is a member of the Zacks Retail – Discount Stores industry, which currently ranks in the top 44% out of approximately 250 industry groups. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform over the next 3 to 6 months.
Quantitative research studies have shown that approximately half of a stock’s future price appreciation is due to its industry grouping. By focusing on top stocks within leading industries, we can dramatically improve our odds of success.
Target is a Zacks Rank #3 (Hold) and has outperformed this year with a greater than 15% gain. The company looks to put last year’s string of earnings misses in the past, and resume what was a long history of beats.
As we look ahead to the current fiscal year, analysts are expecting Target to achieve earnings growth of 66.8% to $9.21/share. Sales are projected to climb 2.55% to $111.18 billion.
While retail management remains cautious about the outlook this year, a strong consumer along with healthy economic activity bode well for the remainder of 2023.
Disclaimer: Target is a long-term holding in the Zacks Income Investor portfolio.