Target's New Kids' Brand May Boost Margins, But Barclays Cautious On Long-Term Prospects

Target Corporation TGT has taken several initiatives aiming to boost sales. While the recently launched kids’ brand Cat & Jack may result in gross margin expansion, there are concerns around the brand’s ability to “drive significant sales and provide a long term, sustainable competitive advantage.

Barclays’ Matthew McClintock maintained an Underweight rating on Target, with a price target of $60.

New Brand Replaces Other Revenue Streams

McClintock believes Cat & Jack could reach sales of $1 billion “relatively quickly.” He added, however, that this does not translate to incremental revenue for Target, since the new brand has replaced Target's Cherokee, which recorded ~$1.1 billion of sales mainly in the kids category in 2014 and 2015, and Circo selection.

Prospects Of New Brand

“We are skeptical of Target's ability to significantly grow Cat & Jack sales long term,” the analyst commented. He explained that merchandising did not seem like a sustainable long-term competitive advantage. Moreover, a price/quality comparison “suggests that Cat & Jack's style and value proposition are in-line with peers.”

McClintock also noted that expectations are for less than ~1.8 percent annual growth, and that the children's apparel category lacked a meaningful tailwind.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!