Target (TGT) checks point to discretionary headwinds that could lead to a bigger decline in fiscal first-quarter comparable sales than previously expected, though the retailer remains well-positioned long term, Oppenheimer said in a Wednesday note.
The brokerage tempered its comparable sales forecast to reflect a decline of 4% to 5%, compared with a 4% drop previously expected. That’s at the lower end of Target’s internal guidance of 3% to 5% and worse than the consensus view for a 3.6% decline. Target is scheduled to report results for the period on May 22.
“Based on our work, we are tempering our views to incorporate recent headwinds that we believe could weigh upon (Target’s) discretionary offerings,” analysts Rupesh Parikh, Erica Eiler and Isabel Andolina said.
Recent data points have “turned less robust,” they said. Industry checks have underscored slowing makeup category growth, declining traffic at Starbucks (SBUX) and ongoing challenges in durable goods categories, the report showed.
Oppenheimer reiterated its earnings per share target of $1.90 for the April quarter, which implies a year-over-year decline from $2.05. The consensus view is for $2.04. Target has guided EPS between $1.70 and $2.10.
“We still expect management to deliver at least the midpoint of (the first-quarter) EPS guidance,” Parikh, Eiler and Andolina wrote. Target has topped the high-end of its internal EPS guidance by an average of 15% in the past four quarters, they said.
The brokerage’s longer-term view over the next 12 to 18 months remains “intact,” the analysts said. They are confident in management’s ability to drive further margin expansion and return to sustained positive comp growth. Oppenheimer labelled Target as a top pick in mid-December. The retailer’s shares have outperformed the S&P 500 year to date.
Parikh, Eiler and Andolina encouraged investors to take advantage of any near-term dips and said a recent pullback in the share price presents an attractive entry point for longer-term players.