Will Target disappoint investors on Wednesday?

Ininvestors have serious concerns as they approach Targetit is (NYSE: TGT) earnings report for the first quarter of 2022 (ended April 30) on Wednesday. While the retailer is expected to report strong sales trends through early 2022, that pace of growth could slow due to new pressures such as inflation. Target also faces a tough comparison to the surge in earnings a year ago.

Let’s take a closer look at how the channel might impress investors with its next announcement on May 18.

Image source: Getty Images.

Growing market share in several niches

Most investors following the stock expect Target to post modest sales gains, with revenue hitting about $24.4 billion, up from $24.2 billion a year ago. That little boost would still be impressive, given that sales at the start of 2021 soared thanks to financial stimulus payments and a rapidly expanding economy. These factors won’t be repeated in 2022, so investors will be happy to see even slight gains in sales on Wednesday.

Watch CEO Brian Cornell and his team point out Target’s growing market share in several attractive niches like beauty and skincare, home furnishings and apparel. Potential disappointments could come in the form of weak e-commerce sales compared to a year ago.

Target could blame supply chain issues and inflation for putting pressure on growth. Demand may also shift away from more profitable niches like home furnishings and toward essentials like groceries, which generate lower margins.

Lower profits expected

A key factor in Target’s stock outperformance during the pandemic has been its industry-beating profit margin. Shoppers have flocked to its premium brands and super-fast delivery options, helping to push margins well above those of peers like walmart and Costco.

A big concern today is that this process will reverse as buying trends return to normal. After all, fewer people rely on home deliveries and consumers may be looking to save money by switching brands.

Executives warned in February that investors should not expect a repeat of last year’s double-digit operating margin. But it’s possible that Target’s profitability will remain higher than it was before the pandemic.

Investors looking for updated insights

Management’s growth outlook in this report called for sales to increase by approximately 5% in 2022, with operating margin reaching 8%. Both forecasts could change to reflect new pressures such as accelerating inflation and a decline in e-commerce demand. Still, Target’s long-term goals aren’t likely to budge.

The retailer has a good chance of steadily increasing sales while remaining solidly profitable, even if consumer spending slows in 2023. This predictability is a key reason the stock has risen over the past year, even though the broader market was down about 3%.

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Demitri Kalogeropoulos holds positions at Costco Wholesale. The Motley Fool fills positions and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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