Target Earnings Preview: Can the Rally Continue?

Target earnings date: Wednesday, May 19, before markets open

Shares in Target (TGT) have surged 18% so far this year. That’s on the back of stellar earnings results for the fourth quarter. America’s second-largest discount chain reported that its 2020 sales grew by over $15 billion, with strong holiday shopping and improved in-store figures. However, the retailer declined to provide future guidance. Here’s where Similarweb steps in. We can use our powerful alternative data to track Target’s key first-quarter digital data trends.

Notably, KeyBanc analyst Bradley Thomas is bullish on Target going into the print. He cites the company’s significant investment in digital capabilities and the facilitation of easy order pickup and delivery. According to the analyst, both these trends will outlast the pandemic.

So what does the digital data reveal? Let’s take a closer look at this retail giant – and how it stacks up against its major rivals:

Traffic is decelerating

We can use monthly unique visitors (MUVs) as a proxy for monthly active users (MAUs) – a key digital metric used to indicate the popularity, performance, and growth of a website.

Similarweb estimates show that Target’s U.S. MUVs decelerated from 40% year-over-year (YoY) growth in January to just 12% in March. On a quarterly basis, MUV YoY growth to target.com dropped from 43% in Q4 to 25% in Q1. Bear in mind, however, that the comparison to early 2020 is becoming increasingly tough. In March 2020, U.S. states began to implement lockdowns, sending digital sales through the roof.

As the graph below illustrates, many retail stocks have faced a similar trajectory, most notably Costco and Kohl’s. Compared to the group, Amazon shows relatively steady YoY growth – and indeed, it has just reported blockbuster first-quarter earnings with sales of $108.5 billion, up 44% YoY.

Turning to the numbers

If we focus on the number of MUVs instead of YoY growth, we can see that, after peaking during the holiday shopping season, traffic has pulled back sharply. MUVs for the quarter came in at 252 million vs. almost 370 million in Q4. This is below the levels seen in the pandemic, but still higher than pre-pandemic traffic (excluding the holiday shopping season, i.e. 4Q19). This closely mirrors Walmart’s traffic pattern:

The conversion rate is improving

Encouragingly, Target’s conversion rate is moving higher. The first quarter was the best quarter for the retail giant in terms of conversion rate. For Q1, Target delivered an average conversion rate of 5.2%, up from 5.0% in Q4 and 4.5% in 1Q20. As conversion directly feeds into the revenue generated by web traffic, this is a bullish signal for the company’s digital prospects.

On the other hand, Target has not enjoyed the more dramatic conversion rate increase seen by Walmart – and it is still a long way off Amazon’s stellar conversion rate of over 8%:

But visit time lags rivals

Audience engagement is a critical sign of how effectively a company’s website caters to the demands of its visits. It can be analyzed via several key metrics including visit duration, pages viewed per visit and bounce rate. If we focus on visit duration, for example, we can see that the time spent on the Target website is consistently below the time spent on Walmart, Wayfair, and Costco’s websites.

However, in March the gap between the different websites in terms of visit duration does narrow. What’s more, the time spent on the Target website has meaningfully improved on a YoY basis. In fact, the average time spent on the site in the first quarter is closer to the levels seen at the beginning of the pandemic (over four minutes), rather than the majority of 2020 – which is a positive signal.

Target earnings report: key takeaways

• According to our estimates, monthly unique visitors to target.com decelerated from 43% YoY growth in Q4 to 25% in Q121.
• Q1 was a strong quarter for the retail giant in terms of conversion rate. Target delivered an average conversion rate of 5.26%, up from 5.06% in Q4 and 4.52% in 1Q20.
• Time spent on the Target website still lags major rivals, although it has improved significantly.

Here we focused on Target stock earnings. You can find our earnings calendar with all our latest earnings previews here.

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