Target's latest earnings show it continues to win with all the items people need: groceries, household products and diapers. But growing softness in discretionary categories, including clothing and household items, paints a picture of cautious shoppers.So its outlook for this year is careful, anticipating more pullbacks in the months ahead.
Executives for the Minneapolis-based company used the earnings report to highlight the many ways it is returning to its prepandemic rhythm. They also clarified how Roundel, its retail ad business, is helping it improve customer experience.
Total revenue for the fourth quarter rose 1.3% to $31.4 billion, compared to $31.9 billion in the fourth quarter of 2021. Comparable sales for the fourth quarter eked out a 0.7% increase, despite a 3.6% dip in digital sales. And same-day sales, which include in-store pickup, Drive Up, and Shipt, increased by 4.3% and now account for more than 10% of total sales.
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Net earnings fell 43.3% to $876 million from $1.54 billion in the fourth quarter of 2021.
Revenue gains were driven by a 1.2% increase in sales and an 8.4% jump in "other income," which advanced to $412 million for the quarter.
On a conference call webcast for investors, Brian Cornell, Target's chairman and chief executive officer, elaborated on Roundel's role in the company. He described its growth since 2019 as significant, "with great additional growth and profit potential. It's sought after by advertisers for its relevance and reach."
Because the retail ad network gives the company a better understanding of shopper preferences, Cornell says it increases engagement. "Roundel makes us better merchants, more consistently serving our guests with the products they want. This is why our approach to digital advertising looks different than others."
Target forecasts slow growth, and expects comparable sales in the coming quarter and the full year to range between low-single-digit declines and low-single-digit growth.
While sales and profits beat expectations, "the 2023 outlook was disappointing," writes Erin Lash, a sector director at Morningstar, commenting on the results.
But she is encouraged by the chain's stepped-up progress in reducing inventory levels with more promotional activity. She believes those steep markdowns "protect the customer experience and store efficiency, which we view as prudent."
Others see speedbumps ahead. "Target faces increased competition from other retailers," writes Krisztina Katai, an analyst who follows Target for Deutsche Bank, which rates the company as a "hold." Those competitors include Walmart, "which has meaningfully improved its omni/general merchandise offerings and overall execution."