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The Street
The Street
Rob Lenihan

Analyst revises Target stock outlook ahead of earnings

With prices like these, Target Lady is going to flip her wig.

Fans of "Saturday Night Live" are probably well-acquainted with Kristen Wiig's somewhat nutzoid Target  (TGT)  cashier, who spends an awful lot of time wandering away from her register to buy stuff for herself. 

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Wiig created the character — which one irate customer described as "a middle-age turtle with brown lips and a hair-helmet" — during her time at the L.A. sketch comedy troupe the Groundlings and performed it as part of her audition for SNL in 2005.

Last month, the people at Target enlisted Wiig's character for a national advertising campaign marking Target Circle Week, a sale for members of the retailer's customer-loyalty program. 

Now, given Target Lady's penchant for shopping, she would no doubt lose her mind following the retailer's May 20 price cut announcement.

Target is scheduled to report fiscal-first-quarter earnings on May 22.

Scott Olson/Getty Images

Target and other retailers slash prices

Target said it was slashing prices on about 1,500 items, with thousands more price cuts planned to take effect over the course of the summer.

Prices started dropping effective Monday, with “thousands more price cuts” — adding up to 5,000 items — being reduced over the summer.

Related: Analysts revise Walmart stock price targets after earnings

“We know consumers are feeling pressured to make the most of their budget, and Target is here to help them save more,” Rick Gomez, executive vice president and chief food, essentials and beauty officer, said in a statement.

Target joins other retailers, such as Aldi and Ikea, which cut prices to lure inflation-conscious consumers.

Walmart  (WMT)  made a big price-cut move in March, with Chief Executive Doug McMillon promising the retailer would get some food prices down to pre-inflation levels.

McDonald's  (MCD)  is planning to offer a $5 value meal in the U.S. beginning on June 25 for about a month.

Retail sales increased modestly in April, according to the National Retail Federation, "as consumers continually search for value."

"Overall inflation remains stubborn because of elevated prices for services, while inflation for goods has dropped to nearly zero," Matthew Shay, the group's president and CEO said. "Consumers remain focused on value and price and are shifting their spending patterns where needed to make ends meet.”

In March, Target reported fourth-quarter earnings of $2.98 per share, up from $1.89 per a share a year and beating Wall Street’s call for $2.42. 

Revenue totaled $31.92 billion, up 1.7% and edging past analysts’ forecast for $31.83 billion in sales.

Comparable sales dropped 4.4%, the third quarter of declines in a row, and the company said it expected another year of weak sales.

Full-year sales decreased 1.7% to $105.8 billion from the previous year, reflecting a 3.7% decrease in comparable sales.

Target called for full-year 2024 comparable sales to be flat to up 2% and adjusted earnings per share to range from $8.60 to $9.60.

Michael Fiddelke, chief financial officer and chief operating officer, told analysts that the theme “we’ve seen this year is a moderation of inflation,” adding that disinflation — a reduction in the rate of inflation — "is the word of the quarter in retail.”

"That's a good thing for the consumer," he said.

Analyst sees Target 'poised for positive catchup'

Target CEO Brian Cornell told analysts that “we are very focused right now over, not just the next year, but the next 10 years to continue to drive even more traffic to our stores and visit store sites to make sure we are a company that's driving top-line growth because we know that's the best way to reward our shareholders.“

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“And we are absolutely going to be razor-focused on taking market share as we go forward,” he said.

Like many retailers, Target celebrated Pride month last June by selling limited-edition rainbow-colored clothing and other merchandise.

However, Target sold rainbow colored clothing, accessories, and other lines that included chest binders, swimsuits, and underwear designed for transgender consumers. This effort resulted in an online backlash from customers and social media users, some of whom complained that the displays were placed close to children's-clothing displays.

Target is scheduled to report fiscal-first-quarter earnings on May 22. Analysts are forecasting profit of $2.05 a share on revenue of $24.5 billion.

Related: Analysts revise Walmart stock price targets after earnings

Analysts at Evercore ISI took aim at Target last week by adding the Minneapolis company to its Tactical Outperform list ahead of the earnings report.

Target "appears poised for a positive traffic/share catchup starting in mid-March as they cycle last year's Pride assortment snafu," the investment firm said. It called for "upside to $170+," pending a solid guide and constructive tone into the second quarter.

However, while Evercore said that it expects "a noteworthy improvement" in trend and a positive growth inflection, it adds that "there is still much work to do in order to regain the market share and customers lost last year amidst a still volatile consumer backdrop." 

Evercore has an in-line rating (effectively neutral) and $178 price target on Target shares.

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