Citi downgrades Target, citing slowing traffic and tough competition

June 9, 2023 8:16 AM EDT
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Join SI Premium – FREE -- Shares in Target (NYSE: TGT) slipped in premarket trading on Friday after analysts at Citi downgraded their rating of the big box retailer due in part to concerns over sluggish foot traffic.

In a note to clients, the Citi analysts cut their outlook for the stock to "neutral" from "buy," arguing that a spike in sales gains made since 2020 has "peaked" and will likely fall further.

Citing data compiled by Citi, the analysts said that traffic in May had dropped by 8.1%, while the number of shoppers visiting the Minnesota-based company's stores slipped by 13.9% in the first week of June. The numbers led the analysts to adopt a "more cautious near term" stance toward Target, they added.

Meanwhile, the analysts warned that Target's "high exposure" to discretionary items will "not serve [the group] well" as inflation-hit customers choose to rein in spending on non-essential items.

"We believe the macro backdrop is unfavorable for [Target], as 55% of their sales are in discretionary product, which is likely to be pressured for at least the remainder of 2023 (and we believe this became more evident during [first-quarter] earnings season)," the Citi analysts said.

They flagged that Walmart (NYSE: WMT), where consumers often go hunting for lower-priced essential items like groceries, will subsequently take market share from Target.

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