Target May Ink Partnerships With Brands Like Ulta Beauty; Wins Analyst Praise In Tough Spending Climate

Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating on Target Corporation TGT, with a price target of $145.00.

Target reported a third-quarter FY23 sales decline of 4.22% year-on-year to $25.398 billion, beating the analyst consensus estimate of $25.31 billion.

Comparable sales declined 4.9% in the third quarter, reflecting comparable store sales declines of 4.6% and comparable digital sales decline of 6%. Gross margin for the quarter expanded by 270 basis points to 27.4%. 

Target's strong 3Q23 earnings and inline 4Q23 guidance were driven by

the gross margin recovery and inventory management, with the comp still down MSD due to the slowdown in discretionary spending, according to the analyst.

In addition, frequency categories outperformed, especially beauty, more

than offset by the ongoing softness in discretionary categories, the analyst adds. 

Traffic was (4.1%) and ticket was (0.8%). The store comp was (4.6%) and digital comparable sales were (6.0%), with same-day services up 8.0%, led by Drive Up growth of 12%.

Target is managing its business well in a difficult consumer spending environment, the analyst adds. 

Longer term, the analyst sees Target gaining market share, supported by ongoing strategies—price investments, private brands, remodels,

small format stores, fulfillment/supply chain enhancements, loyalty programs, and Target + marketplace—as well as partnerships with top brands, such as Ulta Beauty, Inc. ULTA.

Target also has an opportunity to show a multi-year profitability recovery that should fuel significant earnings growth. 

Price Action: TGT shares are trading higher by 17.1% to $129.61 on the last check Wednesday.