Target Faces Tougher Sales Backdrop as Tax Refund Boost Fades

Bank of America has reiterated its Underperform rating on Target Corp ahead of its May 20 earnings report, citing a challenging sales environment expected in the second quarter. While the retailer is projected to deliver strong first-quarter results driven by tax refunds and robust clothing spending, analysts warn that this momentum will likely decelerate. The bank raised its price objective to $110 and increased its Q1 earnings per share forecast to $1.42, anticipating 2% comparable sales growth, which remains below investor expectations of 4-5%. Key headwinds include fading tax refund benefits, lingering effects of elevated gas prices, and the lapping of previous pricing tailwinds. Despite these challenges, Target benefits from favorable gross margin comparisons and new apparel partnerships with brands like Roller Rabbit and Free People. However, continued investments in wages and store improvements are expected to weigh on near-term results. Analysts suggest that expectations for a swift earnings recovery may be overly aggressive, although upside risks exist if earnings flow-through exceeds estimates or if second-quarter trends prove more resilient than anticipated.