Target Faces Sales Decline in Q2 Amid Challenging Environment

Roth MKM's Bill Kirk lowered their price target on Target (NYSE: TGT) by 10.3% from $156 to $140 on August 18, 2023. The analyst maintained their Hold rating on the stock.

In the second quarter, Target experienced a decline in comparable store sales of 5.4% and a 10.5% decrease in e-commerce, according to a review of the company's quarterly report released on August 16. This revealed an unfavorable environment and raised concerns about visibility, as highlighted by analyst Bill Nowak.

Kirk argued that Target has faced challenges due to decreased RedCard loyalty penetration and stagnant Yelp! ratings. However, the analyst also noted that Target achieved strong results during the COVID-19 disruption and has a long-term opportunity to capitalize on a growing digital audience.

Target's Q2 2023 earnings per share (EPS) came in at $1.80, surpassing the Zacks Consensus Estimate of $1.41 and representing a significant increase of 361.5% compared to Q2 2022's $0.39. However, the company's revenue of $24.773 billion missed the Zacks Consensus Estimate of $25.256 billion and fell short by 4.9% compared to Q2 2022's $26.037 billion.

Looking ahead, Target's management provided guidance for Q3 2023 and FY 2023. For the third quarter, the company anticipates a mid-single-digit decline in comparable sales. The EPS forecast for Q3 ranges from $1.20 to $1.60.

For the full fiscal year 2023, Target expects comparable sales to decline in a wide range around mid-single digits. The EPS guidance for FY 2023 is projected to be between $7.00 and $8.00, which is lower than the previous guidance of $7.75 to $8.75.

Brian Cornell, Target's Chair and CEO, commented on the Q2 financial results, emphasizing the resilience of the company's business model. Despite softer-than-expected sales, Target managed to achieve better-than-expected profitability due to a leaner inventory position compared to the previous year. Cornell also highlighted the team's ability to respond quickly to changing market trends while maintaining a focus on the guest experience. He expressed a cautious approach to planning the business, adjusting financial guidance to account for continued near-term challenges but remained optimistic about the company's long-term investments and strategy.

In addition to the analyst rating for Target, Bill Kirk also raised the price target for Walmart Inc. by 5.9% from $169 to $179 on August 18, 2023, while maintaining a Strong Buy rating.

Currently, 46.2% of top-rated analysts consider TGT as a Strong Buy or Buy, while 53.8% see it as a Hold. No analysts recommend or strongly recommend selling the stock.

Analysts' consensus forecast for Target's upcoming year expects earnings per share (EPS) of $8.05. If this forecast holds true, it would represent a 36% increase in yearly EPS on a year-over-year basis.

Since Target's latest quarterly report on August 16, 2023, the stock price has increased by 1.1%. However, on a year-over-year basis, the stock is down by 25.8%. During this period, Target has underperformed the S&P 500, which is down 2.2%.

Bill Kirk, the Roth MKM analyst who provided the rating for Target, is ranked in the bottom 8% out of 4,300 Wall Street analysts by WallStreetZen. With an average return of -7.5% and a 47.8% win rate, Kirk specializes in the Consumer Defensive, Consumer Cyclical, and Healthcare sectors.

Target Corporation, headquartered in Minneapolis, MN, is a general merchandise retailer in the U.S. The company offers a wide range of products, including food, apparel, accessories, home décor, electronics, toys, seasonal items, beauty and household essentials, and more. Target provides various in-store amenities such as Target Café, Target Optical, Starbucks, and other food service offerings. As of March 9, 2022, Target operates 2,000 stores across the country. The company was incorporated in 1902.

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