Analyst Downgrades Target Shares, Cites “Tough” Holidays

A Jefferies & Company analyst said Target struggled in its online execution, experienced soft December sales and poor results for a joint initiative with Neiman Marcus, saw more price competition, and increased its markdowns during the holidays.

An analyst at New York-based investment banking firm Jefferies & Company said in a Wednesday report that he has downgraded his rating for Target Corporation’s stock from “buy” to “hold,” adding that the Minneapolis-based retailer struggled in several areas during the all-important holiday season.

Equity analyst Daniel Binder said that, while Jefferies had “high hopes” for Target during the holiday season, the firm believes that the retailer struggled in its online execution, experienced soft December sales and poor results for a joint initiative with luxury retailer Neiman Marcus, saw more price competition, and increased its markdowns.

Target’s limited-run collaboration with Neiman Marcus “looks to have been a flop,” according to the report. The collection launched in early December, but weeks later, demand remained weak. Target cut the collection’s prices in half in the days leading up to Christmas.

Regarding Target’s online performance, Jefferies said that more consumers made purchases online this year, but “Target was caught with too little inventory and higher out-of-stocks.” Other issues included cancelled orders and problems with online gift lists, according to the report.

Meanwhile, preliminary data shows that holiday sales might have been soft at many of the nation’s retailers, and this year might have marked the slowest growth in spending since the 2008 recession, according to a recent report by The Wall Street Journal. Many retailers resorted to deep discounts near the end of the season, which analysts said is likely to reduce profits, the newspaper reported.

In addition to downgrading Target’s rating to “hold,” Jefferies dropped its one-year price target for the company’s stock from $74 to $59. Jefferies also reduced its fourth-quarter earnings-per-share estimate for Target from $1.49 to $1.40. The firm forecasted a December same-store sales increase of 0 percent to 1 percent, lower than a 2.3 percent consensus of other analysts, according to the report.

In November, Target’s same-store sales dropped 1 percent, despite the company’s Thanksgiving weekend sales push.

Target’s stock closed down about 0.6 percent Wednesday at $58.82, while many other stocks climbed on news that lawmakers finally passed legislation to avert the so-called “fiscal cliff.” (Read more about the stock rally at Fox Business by clicking here.)

Target is Minnesota’s second-largest public company based on revenue, which totaled $68.5 billion in its fiscal year that ended in January. It operates more than 1,780 stores across the United States and plans to open about 125 stores across Canada beginning in March.

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