Macro headwinds compounded by tariff shocks prompt Goldman Sachs Group, Inc. to lower Target Corporation's (TGT.US) target price to $101.

Goldman Sachs Group, Inc. released a research report, downgrading the rating of Target Corporation (TGT.US) from "buy" to "neutral" and reducing the target price from $142 to $101, due to concerns about the recovery in non-essential categories. In addition, considering the potential revenue deleverage and tariff risks, the downside risk to earnings is greater than the upside risk, and recent data from HundredX and Placer indicates that sales at Target Corporation may be slowing down. The downgrade by Goldman Sachs Group, Inc. is mainly due to the following reasons: 1) The macroeconomic environment has become more unstable, with concerns about the recovery of non-essential consumer goods categories, which was a key factor in Goldman Sachs Group, Inc.'s initial buy rating. 2) Potential revenue deleverage, combined with tariff risks, suggests that the downside risk to earnings is greater than the upside risk. 3) Data from HundredX and Placer indicates that sales may be slowing down at Target Corporation. Macro-economic factors present disadvantages, leading to a decline in sales. Goldman Sachs Group, Inc. points out that in the short term, the recovery in discretionary categories is unlikely to be seen. Given the uncertainties of tariffs and inflation prospects, which seem to have had an impact on consumer confidence and expectations, Goldman Sachs Group, Inc. believes that the recovery of non-essential categories will be delayed compared to their expectations. About 53% of Target Corporation's product portfolio in Fiscal 2024 consists of discretionary categories, which may result in the company being more severely impacted by a decrease in consumer spending compared to other peers (such as BJ's Wholesale Club Holdings, Inc. (BJ.US), Costco Wholesale Corporation (COST.US), or Walmart Inc. (WMT.US), which are more focused on groceries). At the financial community meeting held by Target Corporation in March, the management outlined trends for the first quarter, including a slight decline in sales in February attributed to cold weather impacting apparel sales and a decrease in consumer confidence affecting overall non-essential sales. However, the company also reported record-high sales around Valentine's Day and noted that consumers prioritize seasonal moments despite facing financial pressures. Nonetheless, Goldman Sachs Group, Inc. points out that while consumers may continue to shop during seasonal events, the overall decrease in discretionary spending will continue to weigh down Target Corporation's revenue in the short term. Data from HundredX and Placer shows that sales at Target Corporation may be slowing down. As of April 25th, the average year-over-year visit growth at major retail stores is mostly positive, while Target Corporation is at -5.4%. Since August 2024, Target Corporation has been lagging behind its peers, and this gap widened in April 2025. Similar to its performance after the 2009 economic recession, Target Corporation reported negative growth of -2.9% in 2008, but improved to -2.5% in 2009, possibly due to increased demand for non-essential goods. In terms of gross margin, Target Corporation's margin was 32% in 2008, but increased to 32.6% in 2009. This indicates that Target Corporation faced challenges during economic recessions due to its exposure in non-essential categories. Specifically, during the 2008 economic recession, Target Corporation emphasized value through their promotional environment and marketing plans to compete with competitive prices. However, due to these larger discounts and decreases in customer traffic in non-essential areas like home and apparel, Target Corporation's gross margin declined. Goldman Sachs Group, Inc. also noted that as the economic recession recovers, Target Corporation's performance in non-essential categories has been strong, consumer confidence has improved, and inventory management has improved. Tariff impact on profitability Goldman Sachs Group, Inc. believes that considering potential revenue deleverage and tariff risks, the downside risk to earnings is greater than the upside risk. On April 11th, Trump exempted electronic products (20 product categories listed in the CBP guidelines, such as smartphones, computers, laptops, etc.) from equal tariffs. This exemption applies to the 125% equal tariffs recently imposed by President Trump on China, but the 20% tariff is still in effect. Given this exemption, based on three tariff relief scenarios and three SG&A estimation cases, and assuming that Target Corporation's remaining tariff rate is 95%; Goldman Sachs Group, Inc. found that if SG&A costs remain constant, Target Corporation would need to raise its prices by 1%-11% (depending on the tariff relief rate) to achieve breakeven in EBIT profitability. Additionally, Goldman Sachs Group, Inc. emphasizes that additional price reductions pose potential risks to profit margins. Target Corporation's year-end inventory growth was about 7% year over year, management has.It is believed that this is the result of strategic decisions. If the weak sales trend seen in February continues, this may lead to potential price reductions in the fresh, food, and popular product categories."Bonjour, comment vas-tu aujourd'hui?" "Hello, how are you today?"