Target (NYSE:TGT) Posts Better-Than-Expected Sales In Q2, Stock Jumps 10.9%

General merchandise retailer Target (NYSE:TGT) announced better-than-expected results in Q2 CY2024, with revenue up 2.7% year on year to $25.45 billion. It made a non-GAAP profit of $2.57 per share, improving from its profit of $1.81 per share in the same quarter last year.

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"We made a commitment to get back to growth in the second quarter, and the team delivered, all while expanding operating margins and growing EPS by more than 40% compared to last year. Importantly, our growth was driven entirely by traffic in stores and our digital channels, with double-digit growth in our same-day delivery services," said Brian Cornell, Chair and Chief Executive Officer of Target Corporation.

With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE:TGT) serves the suburban consumer who is looking for a wide range of products under one roof.

Large-format Grocery & General Merchandise Retailer

Big-box retailers operate large stores that sell groceries and general merchandise at highly competitive prices. Because of their scale and resulting purchasing power, these big-box retailers–with annual sales in the tens to hundreds of billions of dollars–are able to get attractive volume discounts and sell at often the lowest prices. While e-commerce is a threat, these retailers have been able to weather the storm by either providing a unique in-store shopping experience or by reinvesting their hefty profits into omnichannel investments.

Sales Growth

Target is a behemoth in the consumer retail sector and benefits from economies of scale, an important advantage giving the business an edge in distribution and more negotiating power with suppliers.

As you can see below, the company’s annualized revenue growth rate of 6.9% over the last five years was sluggish as its store footprint remained relatively unchanged.

This quarter, Target grew its revenue by 2.7% year on year, and its $25.45 billion in revenue was in line with Wall Street’s estimates. Looking ahead, Wall Street expects sales to grow 1% over the next 12 months, a deceleration from this quarter.

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Same-Store Sales

A company’s same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.

Target’s demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 1.6% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.

In the latest quarter, Target’s same-store sales rose 2% year on year. This growth was a well-appreciated turnaround from the 5.4% year-on-year decline it posted 12 months ago, showing the business is regaining momentum.

Key Takeaways from Target’s Q2 Results

We were impressed by how significantly Target blew past analysts’ gross margin and EPS expectations this quarter. We were also glad it lifted its full-year EPS guidance. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 10.9% to $160.20 immediately following the results.

Target may have had a good quarter, but does that mean you should invest right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.