Target is expected to report its first decrease in quarterly revenue in six years due to a decline in consumer spending.

Target is expected to report its first decrease in quarterly revenue in six years due to a decline in consumer spending.

target

Target’s Quarterly Revenue Expected to Drop for the First Time in Six Years

In the face of changing consumer spending habits and high inflation, Target is projected to report its first decline in quarterly revenue in approximately six years when it announces its results on Wednesday. This outcome stems from a shift in consumer preference towards spending on services like travel and entertainment, while reducing non-essential purchases such as clothing and home goods.

Target, known for its wide range of consumer discretionary products, is likely to be more severely impacted than its competitors. Edward Jones analyst Brian Yarbrough explains, “Target is going to suffer more versus the others because they have a much larger consumer discretionary element to their business.” As a result, at least 16 analysts have lowered their price targets on the retailer since June, since Target’s merchandise mainly consists of discretionary items like clothes, electronics, and beauty products.

The Context: Inflation and Changing Consumer Behavior

In May, Target issued a warning about its second-quarter results due to inflationary pressures and consumers choosing to avoid non-essential purchases. This trend has been observed in other sectors as well. Mastercard and American Express also noted a slowdown in the purchase of big-ticket items, even as travel and entertainment spending remained strong.

Furthermore, Target faced backlash over its Pride collection, negatively impacting its second-quarter sales. While the company has sold Pride-related products for years, it had to make adjustments in response to customer-employee altercations. Jessica Ramirez, a senior analyst at Jane Hali & Associates, suggests that customers may be cautious with their spending and not indulge in items that may not be used or needed during this back-to-school season.

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The Fundamentals: Q2 Expectations

  • Target’s second-quarter results are scheduled to be released on August 16 before the market opens.
  • Analysts anticipate a 3.3% decline in second-quarter revenue, amounting to $25.18 billion.
  • The projected earnings per share for the same period is $1.39.
  • Rival retailer Walmart is set to report its second-quarter results the following day on August 17.

Wall Street Sentiment

  • Target’s stock has experienced a decline of over 12% since the beginning of the year.
  • In contrast, the S&P 500 Consumer Discretionary Distribution & Retail index has seen a remarkable 31% increase year to date.
  • According to Refinitiv, out of 37 analysts, the current average rating for Target stock is “buy,” with 17 analysts rating it as “buy” or higher.
  • The median price target for Target’s stock is $162.
analyst ratings

Conclusion

While competitors in the retail sector have been able to navigate changing consumer preferences and inflationary pressures, Target is expected to face a decline in its quarterly revenue. The company’s focus on consumer discretionary items makes it more vulnerable to this shift. As Target releases its quarterly results, analysts and investors will be closely examining the impact of changing consumer behavior and inflation on the company’s performance.