MW The U.S.-China trade thaw is helping Target's stock today. Some analysts still see problems with no obvious solutions.

By Bill Peters

'The going is getting tough for Target': Troubles have converged for the retail chain, analysts say.

Shares of Target Corp. rallied on Monday after the U.S. and China agreed to a temporary pullback in their tariff brinkmanship. But even without global trade anxieties, the big-box retailer faces plenty of difficulties, analysts at Bernstein said.

Indications of a tough first quarter; competition with Walmart Inc., Costco Wholesale Corp. and Amazon.com Inc.; shrinking customer appeal; and a tough trade-off between sales growth and retaining margins have converged for the chain, they said. Those factors led the analysts to downgrade the stock to underperform.

Shares of Target $(TGT)$ were up 4.2% on Monday. However, the stock has fallen more than 37% over the past 12 months.

"The going is getting tough for Target," the analysts said. "In the short term, credit card data paints a bleak picture for [the first quarter], dampened by poor weather, weak consumer sentiment, and a DEI-related strike in March. That's before tariffs enter the frame, which means that [Target] will likely have to lower guidance for the full year."

They continued: "More than a tactical play on these short term dynamics, our downgrade is predicated on structural issues. Long-term, Target faces a difficult trade off between stimulating top line growth and maintaining margins. Our analysis shows that it is unlikely to achieve both and, increasingly, neither."

They said that Target's pricing for packaged goods, health products and office supplies still ran 11% higher than similar items at Walmart $(WMT)$, 14% more than at Costco $(COST)$ and 19% more than at Amazon $(AMZN)$. And they said their analysis suggested that Target has lost market share in clothing and home goods since 2019 as it battles with digital retailers and off-price chains.

Target's merchandise mix leans a little more toward those discretionary goods relative to Walmart, which sells more groceries. The past few years of cost-of-living increases have forced many shoppers to prioritize groceries and other essentials, a trend that has benefited Walmart as people try to save money.

The Bernstein analysts made their assessment as Walmart prepares to report quarterly earnings on Thursday. That report is likely to be a focal point for analysts, as they look for more details on the impact of President Donald Trump's tariffs - and related negotiations - on consumer spending patterns and attitudes.

Economists have worried that tariffs will further raise prices for consumers as businesses pass along the costs. However, the U.S. and China on Monday announced a 90-day agreement under which both nations would lower their tariffs on each other by 115%. Trump is using tariffs as a way to negotiate what he says will be better trade deals and a revival of manufacturing in the U.S.

"When discretionary demand does rebound, we expect the competition to increasingly occur online," the Bernstein analysts said. "That is bad news for Target, as competing online is a persistent margin headwind."

The analysts said e-commerce would likely be a big driver, if not the only one, for Target's sales growth. But they didn't expect a major improvement in Target's e-commerce margins, given its smaller online ordering and delivery infrastructure compared with Walmart and its "limited investment" in automation.

"Target's management is facing a difficult choice: to grow the top line and hope it sticks, or to focus on margins and hope for a rebound in demand," the analysts said. "We don't see an obvious answer in the long term."

-Bill Peters

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May 12, 2025 15:30 ET (19:30 GMT)

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