Target Corp (NYSE:TGT) is expected to report fiscal first-quarter earnings on Wednesday, with Bank of America forecasting results ahead of Wall Street estimates despite ongoing pressure from soft discretionary spending and rising costs.
Analysts project adjusted earnings per share of $1.78 and a 1% decline in comparable sales for the quarter.
"While near-term comp trends remain weak and profit pressures persist, we believe Target is well-positioned through strategic initiatives and improving gross margins," BofA analysts wrote.
Target has been contending with slowing sales momentum, particularly in higher-margin categories such as home goods and apparel. BofA cited third-party data showing decelerating sales in the quarter, aligning with its own estimates.
Still, the firm pointed to cost efficiencies, growth in Target’s digital advertising platform Roundel, and expansion of its invite-only digital marketplace, Target+, as supportive factors for margins.
The uncertain tariff environment remains a risk, BofA noted, with about 50% of Target’s imports potentially affected, including an estimated 19% from China. However, the retailer has been shifting production away from China, with owned brand sourcing from the country now down to 30% from about 60% in 2017.
Target is also leaning into merchandising initiatives to drive traffic and differentiate its assortment, with 2025 launches that include an expanded wellness category, exclusive Disney and Marvel collections, and new partnerships with Champion and Warby Parker.
BofA sees long-term upside from Target’s efforts to grow its higher-margin marketplace and advertising businesses — segments that have bolstered valuations for competitors like Walmart.
“Despite near-term volatility, we believe the current stock price undervalues Target’s strategic progress and long-term earnings power,” the analysts noted.
Target will report earnings before market open on May 21.