MINNEAPOLIS — target announced on Tuesday that it is poised to end its sales slump, with its stock rising as the retailer’s earnings beat expectations, despite posting another quarter of declines in sales and store traffic.
The retail giant, which is in the midst of a turnaround effort, said sales and foot traffic trends picked up in the last two months of the holiday quarter. Sales then turned positive year-on-year in February, at the beginning of this quarter.
Target CEO Michael Fidelke said in an interview with CNBC on Tuesday that the company is “right off the bat this year.” He said that while a single month of growth “doesn’t set a trend,” February’s sales increase gives the company “confidence” that it is getting back on track.
Target expects net sales to increase approximately 2% year-over-year this fiscal year, and expects this metric to increase quarterly. The retailer said net sales growth this year will reflect a slight increase in comparable sales. The company added that new stores and non-merchandise sales such as advertising and memberships will contribute more than 1% to growth.
A sign at the entrance to a Target store in Venice, Florida.
Eric McGregor | Light Rocket | Getty Images
Target said it expects full-year adjusted earnings per share to be in the range of $7.50 to $8.50. For the most recent full year, adjusted earnings per share were $7.57.
Mr. Fidelke, who took over the company’s top job on Feb. 1, will try to convince Wall Street that the retailer is gaining momentum in sales at an investor conference Tuesday morning at Target’s Minneapolis headquarters.
Here’s how the company’s fourth-quarter report compares to Wall Street expectations, according to a survey of analysts by LSEG.
Earnings per share: $2.44 adjusted vs. $2.16 expected Revenue: $30.45 billion vs. $30.48 billion expected
The retail giant missed Wall Street’s sales expectations for the fourth quarter, even though analysts had already expected sales to decline. Quarterly sales were down about 1.5% from $30.92 billion in the same period last year.
Customer traffic through the company’s stores and website has declined for the fourth consecutive quarter.
Target’s net income for the three months ended Jan. 31 was $1.05 billion, or $2.30 per share, down from $1.1 billion, or $2.41 per share, a year earlier. Excluding one-time items such as litigation settlements and business transformation costs, Target’s adjusted earnings per share were $2.44.
Target is ending several years of disappointing performance due to a combination of corporate missteps and economic factors. Annual sales have been roughly flat for four years, after the coronavirus pandemic caused annual sales to rise significantly.
The company’s stock is down nearly 32% over the past three years as of Monday’s close, but is up nearly 16% this year.
As Target attempts to rebuild its business, it cut 1,800 corporate employees in October, the first large-scale layoff in 10 years.
Some Target customers told CNBC they are shopping elsewhere after noticing changes such as poorer stores and lackluster merchandise, or because they object to the company’s social stances, such as rollbacks on key initiatives such as diversity, equity and inclusion. The company acknowledged that the backlash against the DEI decision negatively impacted sales and led to a loss of market share to competitors.
Target’s challenge to attract shoppers continues. Comparable sales, also known as same-store sales, an industry measure that excludes short-term factors such as store openings and closings, fell 2.5% year over year in the fourth quarter. This reflected a 3.9% decline in like-for-like sales at Target stores and a 1.9% increase across Target’s websites and apps.
Transactions across Target’s stores and website were down 2.9% year over year. The average amount spent by customers during these transactions increased by 0.4% year over year.
In an interview with CNBC at Target’s headquarters in the fall, Fidelke said his priorities would be restoring the company’s reputation for style and design, improving the customer experience and leveraging technology to improve business results.
He reiterated those important goals on Tuesday, telling CNBC that the company wants to prioritize “great products and (great) experiences.”
Target also announced last month that it would increase investments in store labor costs and cut about 500 roles in its distribution centers and regional offices to address shoppers’ concerns about out-of-stock items, long checkout lines and other store conditions. However, the company declined to comment on further spending.
“We know we need to give our teams the resources they need to deliver a great store experience,” he told CNBC on Tuesday.
Target is known for selling clothing, home goods, seasonal items, and other trend-based discretionary products that customers often make impulsive purchases while browsing the aisles on a “Target Run.” But inflation and tariffs are driving up the prices of groceries, utilities and other necessities, making American consumers less willing to buy items not on their shopping lists.
Fidelke told CNBC that he doesn’t see anything “significantly different” in current shopper behavior compared to recent quarters.
He also wouldn’t say how he expects President Donald Trump’s new 10% global tariffs to affect the company, after the Supreme Court struck down broad tariffs last month. “We’re going to work together to see what happens next year on the tariff front,” he told CNBC. Mr. Fidelke also did not say whether Target would take legal action to obtain tax refunds, like companies like FedEx and Costco have done.
Target’s performance in recent years has been at odds with that of retail rivals like Walmart, Costco and TJX, the parent company of TJ Maxx. TJX has had strong sales performance, attracting shoppers of all income levels and showing growth in categories such as apparel and home goods, where Target has struggled.
In addition to offering products such as food, clothing and household goods, Target is trying to sell more advertising and memberships to customers. The company’s non-merchandise sales increased more than 25% in the fourth quarter. This was driven by membership revenue that more than doubled from a year ago, double-digit growth in its advertising business Roundel, and more than 30% growth in its third-party market.
Same-day deliveries through Target Circle 360 increased more than 30% year-over-year. The subscription service costs $99 per year or $10.99 per month.
