- Wednesday, October 16, 2024
Target stock has endured a difficult summer, experiencing a significant decline of over 20% in just three months. This downturn can be attributed to concerns regarding slowing sales and the repercussions of the company's engagement with Pride-related matters.
Unfortunately, Target's upcoming second-quarter earnings report, set to be released on Wednesday morning, is unlikely to reverse the tide for its share price.
According to Dow Jones Market Data, Wall Street analysts are predicting that Target (ticker: TGT) will report its first year-over-year revenue decline since 2019. Projections suggest that sales will amount to $25.2 billion, reflecting a decline of approximately 3% compared to the same quarter last year.
Earnings may fare slightly better, as analysts estimate adjusted earnings to reach $1.43 per share, marking an increase from 39 cents per share in the previous year.
However, investors remain apprehensive that the company's results may not meet expectations. Oppenheimer analyst Rupesh Parikh notes that sentiment in the market is "extremely negative" leading up to the earnings report. He adds, "Investors in our conversations remain downbeat towards TGT’s near-term prospects… Amidst these factors, we have less confidence in the share price reaction on the print."
In anticipation of the earnings report, analysts have lowered their price target estimates. As of Tuesday, the mean target price stood at $157.81, down from $170.39 as of July 31, according to FactSet data.
This challenging period for Target extends beyond just this summer. Over the past year, the retailer has faced numerous difficulties. In 2022 alone, Target was compelled to revise its guidance twice and fell short of earnings expectations on three occasions.
Unfortunately, 2023 has not been much kinder. Following Target's first-quarter earnings report in May, the stock experienced a sharp decline when the company issued second-quarter guidance that fell below Street expectations. This led to a nine-day losing streak, which was further exacerbated by Target's decision to modify or remove certain products from its annual Pride collection in response to customer backlash.
Target Faces Challenges Amidst Pride Backlash and Macroeconomic Environment
Shares of Target have experienced a significant decline this year, dropping by 15% and losing 30% of their value over the past 12 months.
The impact of the Pride controversy extends beyond Target's stock price. According to Wells Fargo analyst Edward Kelly, it is likely that the controversy has resulted in reduced store foot traffic and sales, and there is a possibility that the company may need to lower its fiscal-year guidance. Currently, Target expects comparable sales to range from a slight decline to a slight increase, operating income growth exceeding $1 billion, and earnings between $7.75 to $8.75.
In addition to the Pride backlash, Target has also faced challenges amidst the current macroeconomic environment. With high inflation and interest rates, consumers are reducing their spending on discretionary purchases, such as home furnishings and electronics - areas in which Target specializes. Instead, consumers are prioritizing spending on food and other necessities.
J.P. Morgan analyst Christopher Horvers notes that until there is a "sustainable interest" from consumers in these discretionary categories, it will be difficult for Target to drive sales growth. However, a rebound in discretionary spending may take some time to materialize. Economists predict that consumer demand will weaken in the latter half of the year due to factors such as the resumption of student loan payments, increasing credit-card balances, and slower wage growth.
Despite the challenging near-term outlook for Target, some analysts, including Oppenheimer's Parikh, believe that the company is well-positioned for long-term success. Parikh recommends taking advantage of current dips in the stock price and the company's currently depressed valuation for those with longer-term investment strategies.
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