Target Corp (NYSE:TGT) remains well-positioned in the long term as consumer spending rebounds, analysts at Jefferies have reiterated after the retailer’s shares tanked more than 20% on a disappointing quarterly report with weak holiday period guidance.
Target on Wednesday guided Q4 flat comparable sales, below the consensus of 1.3%, and adjusted earnings per share (EPS) in the range of $8.30 to $8.90, below Street estimates of $9 to $9.70.
For Q3, EPS of $1.85 on revenue of $25.67 billion missed estimates of $2.30 and $25.90 billion, respectively.
“While the Q3 results were underwhelming, we believe that Target is well positioned for market share gains and margin recovery when broader discretionary spending improves,” Jefferies analysts wrote in a note to clients.
“With a growing advertising business, robust loyalty program, valuation attractive relative to peers, and recent initiatives, we reiterate our ‘Buy’ rating.”
They did, however, lower their price target on Target to $165 from $195.
Shares of Target traded down 21.5% at about $122 in the early afternoon on Wednesday.
Regarding Target’s Q3 earnings, the analysts noted that discretionary categories continued to trend negatively and Target pulled forward inventory ahead of the port strike and the holidays, which drove elevated supply chain costs.
Gross margin of 27.2% was down about 25 basis points year-over-year and short of the consensus of 28.5% driven by higher digital fulfilment and elevated supply chain expenses related to higher inventory levels, up 3% year-over-year.
On a positive note, apparel comparable sales were down less than 1% as unseasonably warm weather weighed on demand, analysts noted.
They also pointed to eCommerce and advertising as bright spots.
“eCommerce sales comped up 10.8%. Same-Day Delivery, an offering within the Target 360 paid membership program, grew 20% year-over-year,” they highlighted. “In addition, Other Revenue grew 11.5% driven by strong performance in its advertising business.”