Speedier delivery has emerged as the key factor driving traffic as competition heats up in the retail sector. Thus, Target (NYSE:TGT) is focusing on scaling its ability to deliver packages quickly to capitalize on the ongoing digital shift. The retailer said it plans to put $100 million into expanding its supply-chain sortation network to over 15 facilities by the end of 2026.
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Sortation centers are critical in reducing delivery time at a lower cost. Target opened its first sortation center in 2020 and currently has nine sortation centers. Its sortation centers delivered 26 million packages in 2022.
What stands out is the 150% increase in orders delivered the next day since it opened the first sortation center. Further, the company expects to deliver about 50 million packages through its sortation centers in 2023, implying roughly 100% growth year-over-year.
Target’s focus on reducing the delivery time and strengthening its next-day delivery capabilities augur well for its e-commerce business in the long run. However, the slowdown in the discretionary categories like apparel, hardlines, and home products due to the pressure on consumer spending amid the higher inflation and interest rate environment could continue to hurt its overall business in the short term.
Given the ongoing macro headwinds and pressure on margins from promotions and shrink, Target’s bottom line could remain muted. The retailer will announce its fourth-quarter earnings on February 28. Our data shows that the company has missed analysts’ EPS projection in the first three quarters of Fiscal 2022.
As for the fourth quarter, analysts expect Target to post earnings of $1.4 a share, down from $3.19 in the prior-year quarter. Further, Wall Street’s sales forecast stands at $30.65 billion.
Is Target a Strong Buy?
Target stock has 10 Buy and nine Hold recommendations, translating into a Moderate Buy consensus rating on TipRanks. Analysts’ average price target of $183.24 implies 10.72% upside potential. Moreover, TGT has a Neutral Smart Score of seven on TipRanks.
