Target's Outlook Deteriorates Amid Digital Traffic Loss and Tariff Exposure.

Target's long-term outlook is deteriorating due to anemic digital traffic and tariff exposure, leading to a downgrade to Underperform from Neutral at BofA Securities and an 11% cut to its price target. The company is losing digital traffic to peers and faces heightened tariff headwinds, impacting its competitiveness.

Target Corporation (NYSE: TGT) is facing a challenging outlook as the company continues to lose digital traffic to competitors and faces escalating tariff headwinds. These factors have led BofA Securities to downgrade the retailer to Underperform from Neutral and reduce its price target by 11%, to $93 [1].

The primary concern is Target's anemic digital traffic growth, which is lagging behind competitors such as Walmart (WMT). Target's monthly active users (MAU) dropped by 4.1% compared to Walmart's MAU growth of 17.2%. This decline in digital traffic is crucial because it hinders Target's ability to scale digital advertising and third-party marketplace fees, which are essential for mitigating gross margin pressures and funding investments in automation and AI [1].

The company's higher import exposure, estimated at around 50% of its cost of goods sold (COGS) compared to Walmart's 33%, exacerbates the margin pressure. To offset the tariffs, Target may need to raise prices at an average of 8% in fiscal year 2027, compared to a more modest 4%-5% increase at Walmart [1]. This significant price increase could impact consumer spending and further erode Target's competitive edge.

The recent termination of its partnership with Ulta (ULTA) has added to Target's operational challenges. The end of the partnership, coupled with inventory shrink and in-store operational issues, has led to a contraction in Target's beauty category, which represents over 10% of its merchandise revenues [1]. Meanwhile, Walmart has been expanding its beauty offerings through partnerships with L'Oreal (OTCPK: LRLCF), further highlighting the competitive gap.

BofA Securities' downgrade comes on the heels of Target's recent financial struggles, including a 23% stock loss so far this year. The company is expected to report its second-quarter results next Wednesday, with analysts forecasting an adjusted profit of $2.02 per share on $24.9 billion in revenue, marking a decline of -21% and -2% year-over-year, respectively [1].

In summary, Target's long-term outlook is deteriorating due to declining digital traffic and escalating tariff pressures. The company will need to address these issues to improve its competitiveness and financial performance.

References:
[1] https://seekingalpha.com/news/4486093-targets-outlook-is-deteriorating-on-anemic-digital-traffic-tariff-exposure-ulta-loss