Target’s first-quarter results beat Wall Street expectations earlier this week, but they weren’t nearly strong enough to keep analysts at UBS from lowering their price target.
The Minnesota-based retailer’s sales rose 0.6% year-over-year to $25.32 billion, slightly beating analysts' expectations. Net income declined nearly 6% to $950 million, or $2.05 per share, compared to $1.01 billion, or $2.16 per share.
UBS reiterated a Buy rating for the company but lowered its target to $184 from $202. Target shares were down 4.2% Thursday to $154.18.
“TGT's 1Q results had some encouraging signs, but they also showed that the consumer environment is weakening,” analysts said. “The retailer's comp cadence was positive to start the quarter drifting negative in April & May. Still, it finished the quarter with positive traffic and an improved inventory position. This should allow it to stay nimble in this environment. This will be crucial especially as discretionary categories likely continue to falter.”
Then there’s the question of guidance. For the second quarter, Target projects a low-single-digit decline in comparable sales and earnings of between $1.30 to $1.70. The company maintained its full-year guidance, ranging from a low-single-digit decline to a low-single-digit increase in comparable sales, along with EPS of $7.75 to $8.75.
UBS ultimately believes the retailer can get there.
“Its 2Q guidance appears prudent given the sales trends it observed quarter to date,” analysts said. “... In a scenario where TGT comparable sales fall 1% in 2Q, it would need to achieve a flat to +1% comp in the 2H to reach the midpoint of its FY'23 guidance range of +LSD% to -LSD%.”
They continued, “The skeptics would argue that the current macro is not conducive to this outcome. However, we think TGT is well positioned to take market share from retail closures this year. For instance, it stands to see a strong back-to-school / back-to-college with BBBY out of the market.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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