It has been about a month since the last earnings report for Target (TGT Quick QuoteTGT - Free Report) . Shares have added about 4.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Target due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Target’s Q1 Earnings Top, Comparable Sales Increase Y/Y

Target Corporation continued with its stellar performance in first-quarter fiscal 2021, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also grew year over year. The quarter marked fifth straight sales and earnings beat. Notably, comparable sales increased for the 16th successive quarter. The metric gained from strength in both store and the digital channel.

Evidently, mass inoculation drive and the passing of a coronavirus relief package triggered spending across the board. Well, demand was not restricted to a few categories as was noticed when the coronavirus crisis gripped the economy.

Undeniably, Target has been focusing on store refurbishments, enhancing digital capabilities and expanding same-day fulfillment options, keeping in mind speed and convenience. Management informed that the company gained more than $1 billion in market share during the quarter under review, on top of $1 billion in share gains a year ago.

Sales & Earnings Picture

Target reported adjusted earnings of $3.69 per share that outshone the Zacks Consensus Estimate of $2.26, and rose sharply from 59 cents reported in the year-ago period. This general merchandise retailer generated total revenues of $24,197 million that increased 23.4% from the year-ago period and outpaced the Zacks Consensus Estimate of $22,286 million. We note that sales jumped 23.3% to $23,879 million, while other revenues were up 30.4% to $318 million. Markedly, the company’s owned brand registered sales growth of 36%.

Let’s Delve Deeper

We note that increase in sales was led by Apparel, Home, Hardlines, Beauty, Essentials and Food & Beverage categories. While Apparel soared at a low 60% range, Home category rose nearly mid 30% range in the quarter. Hardlines increased more than 30%, while Beauty grew in high teens. Within Beauty, the skin care, sun care and bath categories delivered comp growth in the mid 30% range with cosmetics growing in the low 20s. Both Essentials and Food & Beverage witnessed low-to-mid single digit growth.

We note that stores fulfilled more than 95% of the company’s sales in the quarter. Same-day services (Order Pick Up, Drive Up and Shipt) grew more than 90%. Sales fulfilled by Shipt were up nearly 86% year over year and sales through Drive-Up were up 123% during the quarter under review. Order Pickup rose 52% in the quarter.

Meanwhile, comparable sales for the quarter increased 22.9%, backed by 17.1% jump in number of transactions. Also, average transaction amount grew 5%. Comparable sales grew more than 20% for the fourth successive quarter. Notably, digital comparable sales soared 50.2%, while comparable stores sales grew 18% during the quarter.

Target’s debit card penetration contracted 60 basis points to 12.1%, while credit card penetration fell 130 basis points to 8.4%. Total REDcard penetration declined to 20.5% from the year-ago quarter’s 22.4%.

Margins

Gross margin expanded 490 basis points to 30% during the quarter, gaining from favorable category mix and merchandising actions, mainly from low markdown rates. Meanwhile, operating margin grew 740 basis points to 9.8%.

Other Financial Details

During the first quarter, Target paid dividends of $340 million. This reflected an increase of 3% in the dividend per share. Impressively, the company also recommenced share buyback in quarter. The company repurchased shares worth $1.2 billion, thereby retiring 6.1 million shares at an average price of $190.77. At the end of the quarter, the company had roughly $3.4 billion remaining under its share-buyback program approved in September 2019.

The company ended the quarter with cash and cash equivalents of $7,816 million, long-term debt and other borrowings of $11,509 million and shareholders’ investment of $14,959 million. During the quarter, the company made capital expenditures of just over $0.5 billion. Management continues to project full year capital expenditures to be approximately $4 billion.

Outlook

Management envisions mid-to-high single digit growth in comparable sales during the second quarter of fiscal 2021. The company anticipates second-quarter operating margin rate to be well above second-quarter fiscal 2019 rate of 7.2% but is unlikely to be as high as last year’s exceptional rate of 10%.

Target also guided positive single-digit comparable sales growth in the last two quarters of the fiscal year. It also projected full-year operating margin rate to be well above fiscal 2020 rate of 7% and added that the rate could hit 8% or more.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 31.74% due to these changes.

VGM Scores

Currently, Target has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Target has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.