Target Corp (NYSE:TGT) is expected to deliver a strong first quarter but faces a more challenging sales environment heading into the second quarter as the boost from tax refunds fades, Bank of America said, reiterating its Underperform rating on the retailer ahead of its May 20 earnings report.
The bank raised its price objective to $110 from $106 and increased its first-quarter earnings per share forecast by 6% to $1.42, incorporating an expectation of 2% comparable sales growth.
Investor expectations for first-quarter comps range between 4% and 5%, the bank noted.
Despite the upward revision, analysts said they remain cautious, citing decelerating sales trends expected after the first quarter as the tax refund tailwind fades, the lapping of pricing tailwinds from tariffs in the second half of 2026, and the lingering drag from elevated gas prices.
Assuming limited relief in gas prices by the time Target reports, Bank of America said the company will likely strike a balanced tone on its outlook, expressing caution on the macro environment while remaining optimistic on merchandising progress.
Looking ahead to the second quarter, analysts highlighted a favorable gross margin lap of approximately $0.50 from order cancellations last year, home decor floor pad changes coming in June, and the Nintendo Switch 2 comparison in early June. Continued investments in selling, general and administrative expenses, including wages, store improvements, and incentive compensation, are also expected to weigh on results.
Target has recently announced a series of apparel partnerships, including Roller Rabbit, Intimately Free People, Andie Swim, and Parke. Bank of America said it is encouraged by early traction from these collaborations but cautioned that broader changes across other categories and investments in the store fleet will take time to materialize, adding that expectations for a swift earnings recovery could prove aggressive.
The bank said upside risk to its call could come from better-than-expected earnings flow-through and optimistic commentary on second-quarter trends.
Aggregated Bank of America credit and debit card data showed strong clothing spending in the first quarter, up 4.4%, likely aided by tax refunds and pricing. Given that apparel and accessories and home carry the highest private label penetration and gross margin rates, estimated at roughly 40% versus a company average in the high 20% range, any outperformance in those categories could drive gross margin upside versus current estimates.