Target Q2 Earnings Preview: 50% Jump Shows Stock's Post-Pandemic Strength 

• Reports Q2 2021 earnings Wednesday, Aug. 18, before the open
• Revenue Expectation: $24.95 B
• EPS Expectation: $3.49

When discount retailer Target (NYSE:TGT) reports earnings tomorrow, investors will be focusing on the US chain's ability to perform in the post-pandemic environment after posting robust growth in the past year.

TGT Weekly TTM

The nation’s largest retailers benefited immensely from waves of pantry-stocking by American consumers that resulted in massive spikes in sales of some categories, like toilet paper, snacks and cleaning products. The demand surge was so strong that in the last fiscal year, Target increased revenue by more than it had in the previous 11 years combined.

As the U.S. economy reopens, many analysts believe that the best days for these big-box retailers’ sales growth are behind them.

That could be true for top-line numbers due to tough comparisons with last year’s pandemic boom, but the changing buying preferences of consumers also means hefty margins. Target told investors in May that it expects wider 2021 margins than it had foreseen earlier this year, boosted by a shift in demand toward more profitable items like apparel and home decor. 

The Minneapolis-based retailer is expecting the full-year operating profit margin will be “well above” last year’s 7% level, and possibly reach 8% or more. 

Target’s last earnings report also showed that the company remains well-positioned to capture market share from competitors weakened by the pandemic, because of TGT's superior online services, including same-day order pickup and delivery.

Shares Continue To Surge

In recent years, Target has beefed up its investments in online services. Instead of spending heavily to establish a massive network of online fulfillment warehouses, it used stores as hubs to ship online orders or allow shoppers to pick up their orders from store parking lots.

These advantages have helped Target shares to perform extremely well during the pandemic and beyond. The stock is up about 50% this year, massively outperforming Walmart (NYSE:WMT) during the period. TGT shares closed on Monday at $263.15.

Many analysts believe that Target will be able to hold on to its market share gains even after the pandemic is contained. UBS analyst Michael Lasser, in a recent note said that, by foot traffic, Target has looked more like some of the specialty retail success stories in recent years than its traditional rivals.

The note said:

“We believe TGT has distinguished itself in many ways over the last few years, but most importantly, it generated average traffic growth of 4.8% over the last 13 quarters. This is on par with Home Depot (NYSE:HD) (4.9%) and LOW (NYSE:LOW) (4.8%) and above COST (NASDAQ:COST) (4.5%), showing how relevant it has become with consumers.”

Bottom Line 

Target remains in a strong growth mode even after the pandemic-fueled boom, given its expanding market share and remodeling of its stores. Tomorrow’s earnings might provide further evidence in support of this view.