Target earnings outlook: Does TGT have a mobile shopping app problem?

Target Corporation (NYSE: TGT) reported fourth quarter results that beat Wall Street’s expectations for the first time in a year. However, a new report from mobile app analytics firm GWS calls into question the retail giant’s digital ambitions.

Target earned $1.89 per share in the fourth quarter on revenue of $31.4 billion. This compares favorably to the Street’s estimate of $1.40 and $30.72 billion. Encouragingly, comparable sales were up 0.7% in the quarter which handily beat the Street’s estimate for a 1.6% decline.

Meanwhile, net income was down 43% year-over-year to $876 million and comparable sales of 0.7. This should be concerning as it might signal Target is moving in the opposite direction of major rival Walmart (NYSE: WMT). The latest retail news from Walmart shows it reported growth in its net income while US same-store sales were up a whopping 8.3% (excluding fuel). You can read our summary of Walmart’s earnings report here.

Target needs to place mobile ‘at the forefront’

According to analytics firm GWS, Target’s mobile app usage has declined, with two negative trends identified. Firstly, in January 2023, the growth rate for minutes spent on the app and daily users were both negative. Secondly, daily sessions fell 8% year-over-year.

However, it’s not all bad news for Target, as the number of users on the app has increased by 92% since 2019, totaling 4.3 million. Nevertheless, these numbers are now lower than Temu, the latest Chinese e-commerce platform to enter the American market. GWS reports that Temu currently has 10.5 million daily users, indicating that its customer base is surpassing Target’s but still falling behind Walmart.

Looking ahead, Target must prioritize its mobile app to remain competitive. The company has faced some setbacks, with its full-year 2023 EPS guidance ranging from $7.75 to $8.75, which falls short of the Street’s estimate of $9.23 per share. Additionally, Target has invested $100 million to strengthen its supply chain, giving investors reason to be cautious as the stock has fallen out of favor among some analysts.

GWS CEO Dr Paul Carter commented:

Consumers live and breathe through their smartphones. It’s clear that this is no different for retail, and if Target wants to continue to hit the target, the company should continue to place its mobile strategy at the forefront, or risk losing out to new challengers in 2023 and beyond.