Target (TGT +2.49%) was one of those businesses that managed to thrive during the pandemic at a time when retailers were getting battered. But Target's most recent earnings report was nothing short of disastrous.
For the first fiscal quarter ended April 30, earnings per share came in at $2.16, down 48.2% from $4.17 in 2021. The retail giant also downgraded its revenue forecast for the year, calling for low- to mid-single-digit growth.
NYSE: TGT
Key Data Points
Target cited unexpectedly high costs as a reason for its limited profitability and more conservative outlook. Not surprisingly, Target shares fell sharply in light of that negative news.
But while things may seem bleak for Target right now, the reality is that investors should continue to have faith for a number of reasons. In fact, I happen to own shares of Target, and I'm not at all worried about my investment over these factors.
Image source: Getty Images.
1. Target does a good job of pivoting
When health-related fears caused consumers to stay out of stores during the pandemic and revert to online shopping, Target was quick to respond and step up. The big-box giant immediately upped its shipping game, offering numerous options for consumers to procure goods quickly. That helped the company sustain impressive levels of revenue at a time when other retailers saw their numbers decline.
Just as Target did a great job of pivoting in response to the pandemic, so too is it likely to come up with an innovative solution to rising costs. Plus, let's remember that inflation is a problem impacting all retailers right now -- not just Target.
2. It has a loyal customer base
Many financial experts are warning that a recession is imminent, and there's reason to believe their prediction is accurate. At this point, the Federal Reserve is desperate to slow down inflation by implementing a series of rate increases. But what that's likely to do is drive borrowing up to unaffordable levels, resulting in a broad reduction in discretionary spending.
That's likely to hurt retailers across the board -- but it may not hurt Target as much. Target happens to have a very loyal customer base. And as an essential retailer, it's in a strong position to generate solid revenue at a time when consumers may be forced to cut back.
3. It's good at developing strategic partnerships
Target was a popular shopping destination before it began establishing strategic partnerships designed to grow its customer base. But now, it has a number of relationships in place that are likely to work to its advantage.
Target has already teamed up with beauty giant Ulta (ULTA +1.53%), as well as Apple (AAPL +2.37%), to introduce in-store shops designed to draw in consumers. As it continues to expand on that idea, Target has the potential to become its own mini mall of sorts -- only without the overwhelming selection associated with traditional malls.
A great opportunity for investors
As of this writing, shares of Target are down about 37% year to date. But that shouldn't rattle existing investors.
First of all, stocks are down across the board. And while Target shares may have plunged on the heels of a disappointing earnings report, things could quickly turn around as Target takes steps to address its current set of challenges head-on.
In fact, investors who have been looking to own a piece of Target have a prime opportunity to do so now that shares are trading at a discount. With stock prices just a notch above their 52-week low, it's definitely not too late to scoop up Target on the cheap and enjoy a world of upside in the future.
