Target Under Pressure From Discretionary Spend Slowdown, Mounting Inventory Risk, Goldman Sachs Downgrades Stock

Goldman Sachs analyst Kate McShane today downgraded the shares of Target Corp (NYSE:TGT) from Buy to Neutral and lowered the price forecast from $142.00 to $101.00.

The analyst is concerned about slowing growth in discretionary categories amid a volatile macro environment. Risks from potential sales declines, tariff impacts, and weaker consumer data from HundredX and Placer also weighed on the outlook.

Since joining the Americas Buy List in July 2019, TGT shares have risen 6.5%, trailing the S&P 500's 80% gain, said the analyst.

TGT is facing delayed recovery in discretionary spending due to weakened consumer sentiment, tariff uncertainty, and inflation concerns.

With roughly 53% of its FY24 sales tied to discretionary items, TGT is more vulnerable to shifting consumer behavior than peers like BJ's, Costco, or Walmart, which have greater grocery exposure.

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Early first-quarter data shows sales softness, though seasonal events like Valentine's Day still drew strong spending, noted the analyst.

Tariff risks and weaker sales trends pose downside risk to TGT's FY25 earnings, especially if operating leverage declines and SG&A costs remain high.

Target may need to raise prices by 1%–11% to maintain operating margins depending on tariff mitigation and cost-cutting scenarios.

Elevated inventory levels and early product receipts could pressure margins, especially if February's softer sales trends persist and lead to increased markdowns.

Placer data shows Target's foot traffic declined 5.4% YoY in April, and HundredX metrics reveal worsening consumer sentiment, with Target's Net Purchase Intent and Net Promoter Score both dropping below historical averages.

Declines in purchase intent span all income and frequency segments, with California and Texas showing the sharpest sentiment declines year-over-year, the analyst highlighted.

Keeping the above points in mind, the analyst lowered FY25 comp growth estimate to 0.0% from +1.2% and EPS estimate to $8.61 from $9.27.

Price Action: TGT shares traded lower by 2.44% at $89.84 at the last check Wednesday.

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