Investors have some big concerns heading into Target's (TGT -0.63%) first-quarter 2022 (ended April 30) earnings report on Wednesday. While the retailer is likely to report solid sales trends through early 2022, that growth pace might be slowing due to new pressures like inflation. Target is also facing a difficult comparison with soaring results from a year ago.
Let's take a closer look at how the chain might impress investors in its upcoming announcement on May 18.
Market share growing in several niches
Most investors who follow the stock are looking for Target to post modest sales gains, with revenue rising to about $24.4 billion from $24.2 billion a year ago. That small boost would still be impressive, considering that sales in early 2021 soared thanks to financial stimulus payments and a quickly expanding economy. Those factors aren't repeating in 2022, so investors will be happy to see even slight sales gains on Wednesday.
Watch for CEO Brian Cornell and his team to highlight Target's growing market share in several attractive niches like beauty and skincare, home furnishings, and apparel. Potential letdowns might come in the form of weak e-commerce sales compared to a year ago.
Target might blame supply chain issues and inflation for pressuring growth. It may also be seeing demand shift away from more profitable niches like home furnishings and toward essentials like groceries, which carry lower margins.
Weaker earnings expected
A key factor behind the outperformance of Target's stock through the pandemic has been its industry-thumping profit margin. Shoppers have flocked toward its premium brands and its ultra-fast delivery options, helping push margins well above that of peers like Walmart and Costco.
One big concern today is that this process will reverse itself as shopping trends revert toward normal. Fewer people are relying on home deliveries, after all, and consumers may be looking to save money by switching brands.
Executives warned back in February that investors shouldn't 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 an updated outlook
Management's growth outlook heading into this report called for sales to rise by about 5% in 2022 as operating margin lands at 8%. Both forecasts might shift to reflect new pressures like accelerating inflation and a pullback in e-commerce demand. Yet Target's long-term goals aren't likely to budge.
The retailer has a good shot to steadily boost sales while remaining solidly profitable, even if consumer spending slows in 2023. That predictability is a key reason why the stock is up over the past year even as the wider market has declined by about 3%.