Major American retail department store operator Target Co. (NYSE: TGT) stock has been struggling to stay positive during the year. The performance against rival big box department store Walmart Inc. (NYSE: WMT) has been stark as its stock has been hitting new all-time highs on a weekly basis. While Target caters to budget-conscious customers, consumers are still being frugal with product spending, which was evident in its Q1 2024 earnings report.

With Target shares so depressed compared to Walmart, investors must ponder whether the market has overreacted to its last earnings performance. If so, then this could be the opportune time to buy the dip, especially if the bottom is in.

Target operates in the wholesale/retail sector and competes with Walmart, Dollar General Co. (NYSE: DG), Costco Wholesale Co. (NASDAQ: COST), and BJ’s Wholesale Club Holdings Inc. (NYSE: BJ).

Expanding Private Labels: Target's Approach to Margin Growth

Like its grocery competitor, The Kroger Co. (NYSE: KR), Target also carries its private label brands, which it coins “Owned brands". The company has over 45 private labels in various retail segments. A New Day and Joy Lab are women's fashion and performance apparel. Kindfull and Boots & Barkley are Target's pet brands featuring foods and apparel. Market Pantry offers food items that are 10% to 30% cheaper than national brands. Room Essentials, Made by Design, Hearth & Hand with Magnolia are some of its home and lifestyle brands. Target even has many private label wines and spirits, from California Roots $5 wines to The Collection premium $9.99 wines to SunPop fruit-forward wines and Wine Cube premium boxed wines.

TGT Stock is Attempting a Descending Triangle Breakout

The daily candlestick chart for TGT shows a descending triangle pattern. These bearish patterns are formed by a descending trendline meeting a flat-bottom lower trendline at the apex. The lower lows indicate sellers are selling all the bounce attempts, while the flat bottom indicates buyers are patiently waiting for pullbacks. TGT sunk on its earnings results. It recovered for 6 straight days, attempting to break through the descending triangle resistance at the $154.65 gap fill. However, sellers pushed TGT back down under the descending trendline. It's attempting to break out again at the $143.74 resistance powered by a rising relative strength index (RSI) at the 44-band. Pullback support levels are at $143.74, $139.38, $136.35, and $130.39.

Target Incurs a Rare EPS Miss and Gets Punished

Target reported Q1 2024 EPS of $2.03 versus $2.06 consensus estimates, missing by 3 cents. Revenues fell 3.2% YoY to $24.14 billion, falling short of the $24.52 billion consensus estimates. Operating income margin improved 140 bps to 5.3%. This was primarily due to lower freight rates and cost savings offset by a higher promotional markdown rate. Comparable (comp) sales fell 3.7% YoY, which was actually in line with internal estimates of down 3% to 5%.

Silver Lining: Improving Discretionary Sales Trends and Improving Comp Sales

The silver lining in Q1 was the 4% quarter-over-quarter (QoQ) improvement in apparel sales compared to Q4 2023. Digital comparable sales rose 1.4% YoY, the first improvement in a year. Same-day services rose 9%, driven by more than a 13% jump in drive-up.

Beauty products continued to see strength, with a low single-digit comparable, which was led by strength in Ulta Beauty Inc (NASDAQ: ULTA) at Target. While comp sales were down 3.7%, they have actually been improving sequentially as Q3 2023 comp was down 4.9% and Q4 2023 comp was down 4.4%. Of course, this is a far cry from Walmart's Q1 2024 comp sales rising 3.8% YoY. Target also raised their Q2 2024 guidance, expecting breakeven to positive with a range of 0% to 2%.

Target Issues Cautionary In-Line Guidance

Target reiterated that consumer discretionary spending is still under pressure but should normalize over time. The company issued Q2 2024 EPS guidance of $1.95 to $2.25 versus $2.20 consensus estimates. Comp sales are expected to improve around 0% to 2%.

Full-year 2025 EPS guidance is $8.60 to $9.60 versus $9.49 consensus analyst estimates. Full-year 2024 comp guidance was reaffirmed at 0% to 2%.

Target CEO Remains Long-Term Bullish

Target Chairman and CEO Brian Cornell reaffirmed the goal of opening 300 new stores over the next decade and the launch of owned brands Figmint and Dealworthy. He reiterated that U.S. consumers continue to exhibit a high degree of resilience despite multiple challenges like the rapid surge in prices and interest rates. Business trends continue to show spending patterns are normalizing. Despite high prices, inflation has moderated significantly over the last several quarters.

Cornell expects improvement to start from this point forward, “As we look ahead to the remainder of 2024, our team is focused on getting back to top-line growth. We expect that will begin in the second quarter as we build on the remarkable gains we've seen over time.”

Target analyst ratings and price targets are at MarketBeat. The consensus analyst price target of $177.61 implies a 21.54% upside.