Target Reports Earnings Tuesday. Here’s What to Expect.

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Strong earnings or an upbeat tone from management could help reverse the recent slide in shares of the big-box retailer Target.

Analysts expect Target (TGT) to report a profit of $2.85 a share from revenue of $31.34 billion when it reports its results before the bell on Tuesday. Results that high would push Target to record top- and bottom-line results for the full year.

Yet investors don’t have as much information about the key holiday quarter as they usually do, given that Target chose not to provide any fourth-quarter updates, breaking with recent tradition. The fact that Target is being tight-lipped could be a reason for caution, given that companies are less likely to hold good news close to the vest.

That said, Target has been a huge winner throughout the pandemic. An upbeat report from

Walmart

(WMT) earlier this month points to continuing strength in consumer demand, despite headwinds from inflation. Moreover, Walmart’s continued gains in the grocery business could bode well for Target if consumers continue to prefer one-stop shopping at big-box stores, at the expense of supermarkets.

“Target won millions of new customers during Covid-19, which combined with deeper relationships with existing customers, should help the company continue to gain market share in the fourth quarter, 2022 and beyond,” says Telsey Advisory Group’s Joseph Feldman. He has an Outperform rating and $305 price target on the shares.

The stock was trading at $199.87 on Monday, up 0.3%,

There’s certainly reason to be bullish about Target’s longer-term outlook. As the pandemic allowed the biggest retailers to get bigger, Target saw huge customer gains, helped in part by its omnichannel sales model, which includes same-day shipping and curbside pickup. In addition, the company has benefited from a broadened private-label portfolio in categories from clothing to food.

Yet there is more of a question mark over the near-term situation. Not only does Target face the headwinds outlined above, it could also be a victim of its own success. Margins on online and store pickup transactions can be lower than for traditional sales made in stores. And investors have become accustomed to major gains in same-store sales gains that will be difficult to sustain. Higher supply-chain costs and disruption have been a challenge to retailers across the board.

Although Target’s slightly more affluent customer base may be able to absorb more price increases that would offset inflationary pressure on the retailer, there is reason to believe that consumers across the spectrum may be more value-conscious given how fast prices are increasing.

“Regardless of results/guidance, we believe it will be difficult for Target to maintain any potential outperformance in this market,” writes RBC Capital Markets analyst Steven Shemesh, who has an Outperform rating and $278 price target on the shares. “We’re neutral heading into the print, but continue to like shares over the next 12 months.”

If Target delivers another blowout quarter, that could go a long way to reverse recent lackluster sentiment, as the shares are down almost 14% year to date. However, if it were to fall short, especially in areas where Walmart was able to deliver upbeat results, that could weigh on the shares.

Ultimately, Target’s financial forecasts may be the key to the stock’s performance after the earnings. In a market where uncertainty is mounting, investors want assurance that the winners during the pandemic still see growth ahead.

Write to Teresa Rivas at [email protected]