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

Core Viewpoint - Goldman Sachs analyst downgraded Target Corp from Buy to Neutral, lowering the price forecast from $142.00 to $101.00 due to concerns over slowing growth in discretionary categories amid a volatile macro environment [1] Group 1: Financial Performance and Market Position - Since joining the Americas Buy List in July 2019, Target shares have risen 6.5%, significantly trailing the S&P 500's 80% gain [2] - Target is facing a delayed recovery in discretionary spending, with approximately 53% of its FY24 sales tied to discretionary items, making it more vulnerable compared to peers like BJ's, Costco, or Walmart [2] - The analyst lowered FY25 comp growth estimate to 0.0% from +1.2% and EPS estimate to $8.61 from $9.27 [5] Group 2: Consumer Sentiment and Sales Trends - Early first-quarter data indicates sales softness, although seasonal events like Valentine's Day still attracted strong spending [3] - Placer data shows a 5.4% year-over-year decline in Target's foot traffic in April, while HundredX metrics reveal worsening consumer sentiment, with Target's Net Purchase Intent and Net Promoter Score dropping below historical averages [4] - Declines in purchase intent are observed across all income and frequency segments, with California and Texas experiencing the sharpest sentiment declines year-over-year [5] Group 3: Operational Challenges - Elevated inventory levels and early product receipts could pressure margins, especially if February's softer sales trends persist, leading to increased markdowns [3] - Tariff risks and weaker sales trends pose downside risks to Target's FY25 earnings, particularly if operating leverage declines and SG&A costs remain high [3] - Target may need to raise prices by 1%–11% to maintain operating margins, depending on tariff mitigation and cost-cutting scenarios [3]