Target stock has been facing a difficult summer, with shares plummeting more than 20% in just three months. Concerns about slowing sales and backlash related to Pride initiatives have taken a toll on the company. Unfortunately, the upcoming second-quarter earnings report is not expected to reverse this trend.
According to Wall Street experts, Target (ticker: TGT) is projected to experience its first year-over-year revenue decline since 2019. Analysts from Dow Jones Market Data estimate that sales will reach $25.2 billion, representing a drop of approximately 3% compared to the same quarter last year.
Despite the anticipated decline in revenue, analysts are more optimistic about earnings. Adjusted earnings are forecasted to reach $1.43 per share, a significant increase from the 39 cents per share reported last year.
However, investor sentiment remains pessimistic leading up to the earnings report. Analyst Rupesh Parikh from Oppenheimer states that many investors still hold negative views about Target’s short-term prospects. As a result, confidence in how the share price will react to the report is uncertain.
Analysts have been adjusting their price target estimates downward ahead of the earnings release. FactSet data indicates that the mean target price was $157.81 as of Tuesday, compared to $170.39 on July 31.
Target’s challenges extend beyond this summer. The past year has been challenging for the retailer, as evidenced by having to revise guidance twice in 2022 and falling short of earnings expectations three times.
Unfortunately, 2023 has not been much better for Target. In May, after issuing second-quarter guidance below analysts’ expectations, the company’s stock took a nosedive following its first-quarter earnings report. This decline was further worsened by Target’s decision to alter or remove certain products from its annual Pride collection in response to customer backlash.
Despite the uphill battle, Target remains focused on navigating through these challenges and regaining momentum in the market.
Target Faces Challenges amid Pride Backlash and Macroeconomic Environment
Shares of Target have experienced a significant 15% decline this year and have lost 30% of their value over the last 12 months. The impact of the recent Pride controversy surrounding the company extends beyond its stock price. Analyst Edward Kelly from Wells Fargo suggests that it has likely led to a decrease in store foot traffic and sales, possibly prompting Target to revise its fiscal-year guidance.
At present, Target anticipates that comparable sales will range from a low-single-digit percentage decline to a low-single-digit percentage increase. The company also expects to achieve an operating income growth of over $1 billion and earnings between $7.75 to $8.75.
In addition to the Pride backlash, Target has faced challenges navigating the current macroeconomic climate. With high levels of inflation and interest rates, consumers are cutting back on discretionary purchases, such as home furnishings and electronics – areas in which Target specializes. Conversely, consumers are prioritizing spending on food and other necessary items.
J.P. Morgan analyst Christopher Horvers points out in a note to clients that until consumers demonstrate sustained interest in these discretionary categories, Target’s sales growth will be hindered. However, economists predict that a rebound in discretionary spending may take time to materialize due to anticipated weak consumer demand in the second half of the year. Factors contributing to this include the resumption of student loan payments, increasing credit card balances, and slower wage growth.
Despite the current gloomy outlook for Target, some analysts, including Parikh from Oppenheimer, believe that the company is well-positioned for long-term success. Parikh recommends that long-term investors take advantage of the current reduced valuation and occasional dips.
