Target Set to Post First Quarterly Revenue Drop in 6 Years as Consumers Cut Spending

A customer leaves one of the stores of discount retail chain Target in Ancaster, Canada, on Jan. 15, 2015. Peter Power/Reuters

Target is expected to post its first quarterly drop in revenue in about six years when it reports results on Wednesday, as the big-box retailer reels from a shift in consumer spending away from discretionary goods to services.

In recent months, consumers have been spending more on services such as travel and entertainment, while cutting down on non-essential purchases including clothing and home goods amid high inflation.

“Target is going to suffer more versus the others because they have a much larger consumer discretionary element to their business,” Edward Jones analyst Brian Yarbrough said.

At least 16 analysts have cut their price targets on the retailer since the beginning of June as its merchandise is skewed towards discretionary items such as clothes, electronics and beauty products.

The Context

Target in May had warned of dour second-quarter results as inflation forces consumers to shun non-essential goods.

Mastercard and American Express in their latest quarters also noted a slowdown in purchases of big-ticket items, even as spending on travel and entertainment remained robust.

A recent backlash over Target’s Pride collection is also expected to impact its second-quarter sales.

The company, which has been selling Pride-related products for years, said in May it was making “adjustments” to its Pride merchandise, including removing some items from transgender designer Erik Carnell’s Abprallen brand, in response to an increase in customer-employee altercations.

Jane Hali & Associates senior analyst Jessica Ramirez added more caution, saying customers might not necessarily spend extra on things that may not be used or needed this back-to-school season.

The Fundamentals

** Target is expected to report Q2 results on Aug. 16 before market opens

** Its Q2 revenue is expected to fall 3.3 percent to $25.18 billion, according to analysts polled by Refinitiv

** Q2 profit per share is expected to be $1.39

** Rival Walmart is scheduled to report on Aug. 17

Wall Street Sentiment

** Target shares have lost more than 12 percent so far this year

** The S&P 500 Consumer Discretionary Distribution & Retail index has climbed more than 31 percent year to date

** The current average rating of 37 analysts on Target stock is “buy”, with 17 rating it “buy” or higher—Refinitiv

** The median price target is $162

By Granth Vanaik