![]() Target’s days of rapid store expansion are behind it, implying that most growth will be derived from comparable sales. In the near term, we expect Target’s top line to face pressure as consumers trade down to lower-priced retailers such as Walmart, and we forecast operating margins to remain compressed as the retailer’s sales skew more toward lower-margin items in food, beverage, and household essentials. However, as consumers work down excess savings and costs remain elevated, there have been signs of an imminent pullback in demand, prompting retailers to take a cautious approach to the second half of 2023. Target grew rapidly across each of its product categories over the past three years, with sales increasing nearly 40% amid unprecedented consumer demand and abundant disposable income. We expect fiscal 20 to be choppy as economic uncertainty and persistent inflationary headwinds pinch consumers’ wallets. We expect Target’s financial results to remain constrained in the near term as consumer’s appetite for more discretionary product categories continues to abate. However, with the stock now selling near $130 per share and our fair value estimate at $132 (down from $139 before the firm reported earnings), we view it as fairly valued. Prior to reporting, Target traded in 4-star territory.sales come from its grocery category), we surmise the retailer may face difficulty attracting consumers during more tumultuous economic times. Without a clear low-price value proposition and a sales mix that relies more on discretionary product categories (about 45%-50% of Target’s sales are from higher-frequency categories such as food, beverage, beauty, and household essentials, whereas about 60% of Walmart’s WMT U.S. However, precarious economic conditions and inflationary pressures have seemingly prompted consumers to pull back on spending, particularly in discretionary product categories. Target’s top line has expanded nearly 40% over the past three years as consumers spent heavily on high-margin general merchandise, such as apparel and home décor.Target’s $2.10 in earnings per share well surpassed its guidance range of $1.20-$1.60, sending shares soaring over 15%. Consumer demand for discretionary product categories-such as home and apparel-remains tepid, but margins improved as prudent inventory helped limit the need for inordinate promotional destocking, as occurred last year. Despite a mid-single-digit decline in Target’s comparable sales, the retailer’s gross margin expanded by an impressive 270 basis points, exceeding our expectations.Here’s Morningstar’s take on Target’s earnings and stock. Target TGT released its third-quarter earnings report on Nov.
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