Target Might Need To Tread Carefully

Target Might Need To Tread Carefully
Daniel Johnston

7 months ago2 mins

What’s going on here?

Target's results on Wednesday showed that stores were chock full of shoppers – but there were still a few warning signs dotted about.

What does this mean?

Navigating the retail world might not have been a walk in the park last quarter (looking at you, Home Depot) – but it seems that discount retailer Target managed to hold its own despite the headwinds. Sure, the firm’s barely-there sales growth didn’t set the world on fire, but there were positives given the grim backdrop. After all, while nice-to-haves were out of style, the firm saw customers flock to its stores for groceries and household offerings – with store traffic actually up compared to last year. What’s more, gross profit margins climbed too, thanks to dipping transportation costs and less overstocked inventory in need of discounting. That meant the savvy firm took a well-earned bow, with revenue and profit both overshooting expectations.

Target same store sales
Source: The Wall Street Journal

Why should I care?

Zooming in: Decline and fall.

Target’s sales trajectory showed the truth of the consumer spending environment right now: starting decently in February, the numbers dipped in March, and then took another nosedive in April. And although Target’s no stranger to adapting to customers’ habits – it’s already leaning into the popularity of cheap essentials – that dropoff could spell trouble. The firm, then, is keeping expectations in check, warning that the quarter ahead could be a slow one and maintaining its pretty conservative full-year outlook. But hey, better safe than sorry…

The bigger picture: Penny-wise and dollar-foolish.

Target’s outlook might send shivers down the spines of investors concerned about weakening consumer spending – something that makes up a hefty chunk of the US economy, and one of the only factors standing between the US and looming economic shrinkage earlier this year. And those all-too-valid worries might explain why Target and Walmart’s shares have been struggling lately, trailing behind the S&P 500 so far this year.

Target vs SP 500
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