Target Corporation (NYSE: TGT ) is due to report its fourth quarter results before the bell on Tuesday. And investors are chomping at the bit for some insight into how the firm performed during the all-important holiday shopping period. Although retailers have been under a great deal of pressure recently, 2018 has been touted as the year the industry makes a comeback. Mixed results from rival Walmart Inc (NYSE: WMT ), however has many questioning whether TGT stock will be able to impress investors with its fourth-quarter numbers.
Here's what to watch when Target reports earnings.
One of the biggest metrics investors are watching when it comes to the retail sector is same-store sales. And Target looks ready to deliver on this one. Earlier this year, management boasted about the firm's impressive comps during the holiday shopping season. Between November and December, comps rose by 3.4% - far above the firm's initial expectations and a near 1% increase from the previous quarter.
While the comps growth is likely already priced in to TGT's stock price, investors will want to keep an eye on the mix of online sales and in-store sales.
It will be important to see growth in TGT's digital sales. Many expect to see the figure come in upwards of 20%. Target has recently made a major push into adding more convenient online shopping options. And while these options have been successful in drawing in online shoppers, they've made a dent in profitability.
A weak-spot for Target has been profitability as the company works to build out its online and delivery options. Those offerings are important in order to keep up with peers like Amazon.com Inc. (NASDAQ: AMZN ). But TGT needs to find a balance between creating a shopping experience consumers love and keeping margins in check.
Wal-Mart's results showed similar challenges as the company lowered online prices and threw in free delivery in order to grab marketshare. Those decisions hurt profitability. And we'll likely see a similar situation with Target's Q4 figures.
Investors are also hoping for an update on CEO Brian Cornell's plans to overhaul Target stores and make them the "easiest place to in America to shop." Most notable has been the company's efforts to revive its image as an affordable, yet stylish home goods provider. Target plans to launch Opalhouse , a home goods line with an international vibe. All of the goods look expensive, but the majority can be bought for less than $30.
Outside of home goods, investors want to hear about the company's plans for its apparel department -which took a hit after Amazon introduced its own clothing line. Concerns about apparel have been paramount for TGT stock holders. The segment used to be a draw for consumers, but has started to fall by the wayside.
Another of Target's initiatives to keep an eye out for is the push into children's toys. With the departure of Toys R Us from the market, there will be space in the market. But so far analysts have been skeptical about how great that opportunity really is. The toy market is struggling against digital alternatives that are geared toward younger and younger children. So making a push into that space doesn't look like a well-thought out long-term plan.
Q4 earnings are also likely provide some insight into plans to build out Target's grocery offerings. So far TGT hasn't been able to effectively incorporate food items into its stores. But the firm's acquisition of Shipt has helped Target recreate its grocery arm into a more efficient service that allows for fast order fulfillment and delivery.
Many expect TGT to leverage Shipt to facilitate non-grocery deliveries eventually as well, but again the big concern will be profitability.
The Bottom Line for TGT Stock
TGT stock appears to have almost all of its building blocks in place to orchestrate a successful bounce-back after a few hard years.
However, the long-term view isn't totally clear and profitability is still a big red flag.
Q4 earnings will likely shed some light on the firm's progress, but they are unlikely to inspire a great deal of confidence unless profitability has picked up.
As of this writing, Laura Hoy was long AMZN.
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