[Note: Target’s
TGT
Target (NYSE: TGT), the second-largest discount chain in the U.S, currently trades at $106 per share, around 60% below its level of $266 seen on November 16, 2021 (pre-inflation shock high), and has the potential for sizable gains. TGT saw its stock trading at around $138 on June 22, 2022, when the Fed kept increasing rates, and now remains down by about 24% from those levels. The retailer’s stock decline can be attributed to shifting consumer sentiment and slowing company sales. Consumers are still pulling back on discretionary purchases. Target’s Q2 revenue fell 5% year-over-year (y-o-y) to $25 billion due to a 5.4% decline in comparable sales. Further, comparable digital sales also fell 10.5% in Q2. However, the retailer lapped a period with unusually high inventory levels in the year-ago quarter and made progress on initiatives to improve its gross profit margin. TGT reduced its inventory by 17% y-o-y, which helped drive gross margin up from 21.5% in Q2 2022 to 27% in Q2 2023. Consequently, Target’s operating income improved by 360 basis points to 4.8% and adjusted earnings per share quadrupled from $0.39 in Q2 2022 to $1.80 in Q2 2023. Having said that, the company’s next few quarters could continue to show sluggish sales trends that reflect weak demand for some key product lines. We expect the company shares to likely remain under pressure in the short term.
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