Target (NYSE: TGT) expects continued growth in the current fiscal year despite a challenging business landscape stemming from cost inflation, labor challenges, and supply chain bottlenecks.
The big-box retailer’s revenue grew 13.3% to $106 billion in FY21 (ended January 29, 2022), building on the exceptional pandemic-induced growth rate of 19.8% in FY20. Comparable sales were up 12.7% in FY21, in addition to the 19.3% growth seen in FY20. Adjusted EPS jumped 44% to $13.56 in FY21.
Target now expects low- to mid-single-digit revenue growth in FY22. It anticipates high-single-digit growth in FY22 adjusted EPS, despite increased costs continuing to affect profitability.
Target shares have advanced 8.1% over the past month and 11.6% in the past 52-weeks.
Strategies to Ensure Sustained Growth
Over the long term, Target aims to generate mid-single-digit revenue growth and a high-single-digit increase in adjusted EPS. The company continues to invest in its strategic efforts, including improving omnichannel capabilities, to drive future growth.
Target is leveraging its extensive store network to fulfill online orders. As of FY21, Target operated nearly 2,000 stores across the country. Per the company, its stores handled over 95% of its FY21 sales, including 12% additional in-store traffic and most of the digital demand.
Further, Target is enhancing the consumer shopping experience through its same-day delivery services. It’s worth noting that over half of the company’s FY21 online sales were fulfilled through its same-day delivery services, which include Drive Up (Target’s curbside pick up option), Order Pickup, and same-day delivery with Shipt.
Target continues to take measures to improve store traffic and has completed top-to-bottom remodels across nearly half of its stores since 2017. Specifically, 145 stores were remodeled in FY21. Per the company, traffic gains across remodeled stores helped drive an average 2% to 4% lift in sales in the first year and another 1% to 2% increase in the second year.
Target has also entered into strategic partnerships (like with Disney, Apple, and Ulta Beauty) to enhance its merchandise offerings and boost store footfall. Under its partnership with Ulta Beauty (ULTA), Target aims to open at least 800 Ulta Beauty at Target store-within-stores over time, with plans to add over 250 new locations this year. It is seeing favorable results from the Ulta Beauty at Target stores opened in about 100 locations in FY21.
Barclays Calls TGT its Top Pick
On April 7, Target shares rallied 5.7% after Barclays analyst Karen Short named the company a Top Pick in the retail sector.
Short believes that at the current share price, investors are being presented an attractive opportunity to own a best-in-class retailer at a sizable discount to other strong peers. The analyst expressed confidence about the impact of strong foot traffic trends observed at Target’s stores over the last six weeks.
Short assigned Target a Buy rating with a price target of $280 (22.7% upside potential).
Wall Street’s Take
Several analysts raised their price targets on TGT stock following the retailer’s stronger-than-anticipated Q4 earnings and FY22 outlook.
However, given the near-term headwinds, Wall Street is treading cautiously with Target. The stock scores a Moderate Buy consensus rating based on 13 Buy and seven Hold recommendations. The average TGT price target of $275.22 implies 20.61% upside potential over the next 12 months.
Conclusion
Target’s strategic initiatives are driving its business despite multiple near-term headwinds. The company’s focus on boosting its stores and digital business, a wide assortment spanning staples and discretionary items, and initiatives to enhance productivity will likely help it navigate tough business conditions.
Meanwhile, hedge funds have been accumulating Target stock. Per TipRanks’ Hedge Fund Trading Activity tool, hedge funds increased their holdings in Target by 100.8K shares in the past three months.
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