On Tuesday, Target (NYSE: TGT) reported its holiday quarter results, with both top and bottom lines surpassing Wall Street estimates. Despite guiding for another year of weak sales, Target was rewarded for boosting its profit and margins with its shares jumping 12% during morning trading. Moreover, Target unveiled a paid membership program to combat its rivals, Walmart (NYSE: WMT) and Amazon.com Inc (NASDAQ: AMZN).
Fiscal Fourth Quarter Results
For the period ended on February 3rd, revenue grew nearly 2% to $31.92 billion due to a boost from an additional week of sales compared to last year's comparable quarter, surpassing LSEG's estimate of $31.83 billion.
Net income expanded by nearly 58% to $1.38 billion, or $2.98 per share, significantly surpassing Target's own forecast that was in the range between $1.90 and $2.60 per share. Adjusted earnings amounted to $2.98 per share, also surpassing LSEG's estimate of $2.42 per share.
Operating income margin rate also improved from last year's comparable quarter when it amounted to 3.7% to 5.8%. However, comparable sales, both in stores and online, dropped 5.4% YoY. Online sales contracted 0.7% YoY but still improved from the third quarter's 6% drop. With the sales recovery of Target.com, Target succeeded to surpass the analyst estimate of a 4.6% decline in comparable sales with total comparable sales falling 4.4%. Physical traffic also improved as more shoppers used curbside pickup, from third quarter's 4.7% decline to 1.7% decline.
Target Circle 360 To Combat Amazon And Walmart
Target announced its plans to launch its paid membership program next month. Like its rivals, Amazon and Walmart, Target will offer its shoppers same-day delivery. The minimum order threshold for the unlimited same day delivery will be on par with the membership offering of Walmart and its Walmart Plus program. For the initial cost of $49 per year, members will also be offered automatic discounts and personalized deals. The program will be launched on April 7th.
A Better-Than-Expected Fourth Quarter To End A Challenging Year
After significant pandemic-fueled gains, Target's sales were sluggish over the past two years, reflecting a customer pullback in discretionary spending. Last month, even it's much bigger rival that weathered inflation much better than others, Walmart, said it observed that inflation is forcing shoppers to hunt for value even on everyday goods, despite also seeing sings of discretionary spending pickup up. Over the past few quarters, Target was also hit by increased levels of theft as well as a backlash to its Pride month collection. Target was cautious with its holiday quarter outlook and it opted for the same approach, but it is expecting its membership program and product launches to result in this year's sales recovery.
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