Analsyts: Target Margins Put It At Risk By Spending

Target Corporation's TGT plans to spruce up stores to boost traffic may put its profit margins at risk going forward, analysts said Thursday.

The Minneapolis-based retailer changed hands recently at $77.31, up $0.16 cents.

Target, which posted fourth-quarter same-store sales growth of 3.8 percent on Wednesday, is expected to lay out its spending plans at a New York investors' conference March 4.

Although Executive Vice President John J. Mulligan said much of the plan will be covered by cost cutting, several analysts were less certain.

Barclay's Matthew McClintock said the spending "could pressure near-term margins" although it's likely to pay off down the road.

Unless the spending is accompanied by a bucket of savings, "these efforts are likely to come at the expense of margins," according to Sterne Agee's Charles Grom.

Target offered a first-quarter earnings forecast Wednesday slightly below Wall Street's expectations, and Jefferies' Daniel Binder suspects a relationship with spending plans.

Binder said Target is withholding details until an investor conference next week because it wants "a better forum to lay out the case" than offered by its quarterly conference call.

The company is slated for a presentation Wednesday at the Bank of America Merrill Lynch Consumer & Retail Conference in New York.

McClintock cut his 2015 earnings forecast more than 4 percent to $4.35 a share, maintaining an Overweight rating and $75 price objective.

Target's first-quarter forecast implies that its profit margin will only partly recover from a 100 basis-point decline of a year earlier, McClintock said.

"This could foreshadow trends for the remainder of the year," according to McClintock.

Grom maintained a Neutral rating and $70 target, but cut his 2015 earnings estimate more than 2 percent, also to $4.35 a share.

Binder cut his price objective nearly 4 percent to $76 and maintained a Hold rating on Target, although he said the company's first-quarter outlook "may be conservative."