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Target relaunched membership program
Target’s (TGT) Q1 earnings missed forecast for the first time since November 2022. The company earned $2.03 in the March quarter, which fell short of the $2.06 expected. The revenue of $24.53 billion slightly beat the anticipated $24.52 billion.
Investors are unsure whether the price cut for essential goods could help Target boost Q2 earnings.
Related: Walmart stock analyst makes key call ahead of Q2 earnings
Food and beverage only accounts for 23% of Target’s total sales in 2023, according to Statista’s June report. Nearly 30% of Target’s sales came from the beauty and household essentials segment, while apparel & accessories, hardlines, and home furnishings each contributed around 15%.
This breakdown has both positive and negative implications. On the positive side, the variety in product offerings allows it to attract a broad customer base.
According to Statista’s 2023 survey, 9% of teenage girls identified Target as a shopping destination for beauty products. This placed Target in third place among all beauty shops in the country, ahead of major retailers like Walmart and Amazon.
But it also means that Target stocks more non-essential goods, and consumers have been cautious with discretionary spending.
U.S. retail and food services sales for June 2024 were flat from May, up 2.3% from a year ago. The unemployment rate surged to near a three-year high of 4.3% in July.
“There are still growing signs that many consumers are reaching their max,” Nationwide’s senior economist Ben Ayers told Reuters. “This is most pronounced among lower-income households which are most sensitive to increases in everyday costs and most at risk for a cutback in hiring.”
To compete with rivals like Walmart (WMT) and Costco (COST) , which thrive at membership programs and fast shipping services, Target relaunched its loyalty program Target Circle in April. The program now has over 100 million members.
“We’ve redesigned the program to deliver even more value while making it easier to use and understand,” Cornell said. Shoppers can join Target Circle for free or spend $99 per year to join Target Circle 360 with more discounts and free same-day shipping.
Target will post its second-quarter 2024 financial results on August 21. Its rival, Walmart, will report quarterly earnings on August 15.
Analysts lower Target stock price goal before earnings
Evercore ISI added Target to its Tactical Underperform List on August 12 ahead of Target’s Q2 earnings, predicting a near-term decline toward the low to mid-$120s.
“While Target’s Q2 results are likely to be at or above estimates, comp and traffic trends appear to be moderating into Q3 when they should be improving”, the analyst tells investors in a research note. Evercore ISI has an “in-line” rating and a $158 price target.
Wells Fargo lowered Target’s stock price goal to $160 from $175, keeping an overweight rating ahead of quarterly results.
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The analyst expects solid Q2 earnings but is concerned about the macro economy. “The issue is the second half of the year outlook given Target’s exposure to the consumer and calendar headwind,” the analyst said.
JPMorgan also lowered the firm’s price target on Target to $153 from $165 and kept a neutral rating on the shares as part of a Q2 earnings preview.
The analyst said that the “boiling frog” scenario for consumers continues, with the “water heating up.” This leads to increased promotions across retail as the labor market weakens and consumer balance sheets deteriorate.
Target traded around $135 per share on August 12.
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