Target’s markdown strategy signals a return to pre-COVID prices across retail, analysts say

Target Corp.’s discounts to sell off excess inventory could signal a return to pre-COVID prices across retail, analysts at Raymond James wrote.

target TGT,
issued a profit warning on Tuesday, accompanied by a strategy to reduce the glut of goods. In addition to discounts, the retailer will make price increases, supply chain adjustments, and more.

Target said it saw a “rapid slowdown” in categories like apparel, home and hardlines in the first quarter, although strength in areas like beauty and food continued. Too many ‘bulky’ items such as televisions and appliances led to promotions during the period.

See: Target’s moves to reduce inventories are right, but a few weeks late, analyst says

Raymond James forecasts more promotions, more discounts on consumables and a lower margin structure across the sector.

“Today, these trends are being accompanied by record high levels of inflation and continued macroeconomic uncertainty,” wrote analysts led by Bobby Griffin.

“To be clear, we believe these are retail trends and not just destination specific. “

Regarding Target, Raymond James says it has the right strategy and will hold on to the market share gains it’s made across a variety of categories.

Raymond James rates Target stock as a Strong Buy with a price target of $190 compared to $205.

BMO Capital Markets also suggested that the challenge goes beyond Target.

“While the sudden change in a short period of time seemed alarming at first glance, it appears that Target is taking more aggressive action to deplete its excess inventory in light of the broader excess inventory across the channel,” Kelly Bania wrote in a note.

“This change does not appear to reflect a change in demand/traffic trends, and Target reiterated its forecast for low-to-mid percentage digital revenue growth.”

BMO rates Target stock with a price target of $210.

Raymond James was one of at least three analyst groups to lower Target’s price target.

“While this is a painful time for Target, (re)starting their meds in 1Q22 and 2Q22 sets the stage for a better second half with cleaner inventories,” wrote DA Davidson’s Michael Baker.

“We believe that this can also lead to a better second half of the year for the stock.”

DA Davidson recommends buying Target shares with a target price of $171 compared to $205.

“While it was expected that the profitability challenges the company faced in Q1 would persist as Target continued to work off its excess inventory, the headwinds are greater than previously anticipated,” Truist Securities wrote in a statement.

“While overall sales trends remain solid, we anticipate these operational challenges will be the focus until we see meaningful improvements.”

Truist yields Target Stock Hold with a price target of $150, down from $171.

Target shares rose 1.8% in Wednesday trading. The stock is down 31.4% year to date, while the broader S&P 500 index SPX,
is down 12.8% for the period. Target’s markdown strategy signals a return to pre-COVID prices across retail, analysts say

Brian Lowry

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