What happened
Target (TGT 0.58%) stock ended a bad year on a good note. Shares gained 6% in the final six months of the year, besting the 1.4% increase in the S&P 500 during that time. That boost didn't change the fact that Target trailed the market for the full 2022 period, shedding 36% of its value.
The modest rebound in late 2022 came as investors grew slightly less fearful about a difficult recession on the way. But Target still faces some big challenges ahead as it works to push profitability back up toward the high single digits.
So what
The key factor supporting the stock in recent months has been signs of stabilization in Target's business. Sure, operating profit margin fell hard in the Q3 period that ended in late October. But the chain's price cuts appear to be doing their job in clearing out inventory and supporting demand trends.
Customer traffic rose 1% in Q3, sales were up 3%, and operating profit margin improved compared to the prior quarter. "This performance demonstrates the durability of our business model," CEO Brian Cornell said in a press release.
Now what
Investors are eagerly anticipating the retailer's post-holiday season update, which typically arrives in mid-January. That report will determine whether Target achieved management's conservative Q4 sales outlook that called for slightly lower sales compared to last year.
Looking further out, Target's full fourth-quarter report usually comes in early March and will contain details on its profitability and management's detailed guidance for the new year. The high level of uncertainty about that outlook helps explain why the stock has been underperforming since early 2022.
Wall Street is especially interested in seeing the discretionary goods retailer return to a strong operating profit margin that's closer to 10% of sales than the 4% rate that shareholders have seen recently. When there's evidence of that rebound, the stock will likely keep beating the market, as it did over the last several months.
