Target's (TGT) fiscal Q1 showed early signs of progress, but tougher comparisons and fading consumer tailwinds could pressure results going forward, BofA Securities said in a note emailed Thursday.
The bank said it is raising fiscal 2026 and fiscal 2027 earnings per share estimates for the retailer by 4% and 5% to $8.20 and $8.53, respectively. However, upcoming comparisons will become more difficult as Target begins to lap the Nintendo Switch 2 launch and loses the benefit from earlier tax refund-driven consumer spending.
The firm said the drivers of Q1 gross margin are expected to continue into Q2. Positive factors include stronger full-price sell-through, ongoing gains from advertising and supply chain efficiencies, and another quarter of shrink-related benefits tied to accrual timing.
"We believe [Target's] lack of scale vs. larger competitors in digital advertising and [third-party] online marketplace may inhibit its ability to offset margin pressures and fund key strategic investments to the same degree," the firm added.
BofA maintained its underperform rating and $110 price target on Target.
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