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In a note to clients, Citi analyst Paul Lejuez said Target’s (NYSE:TGT) recent bad news is also bad for many other retailers.
Three weeks after reporting first-quarter results that saw Target significantly reduce guidance, the retailer again lowered its outlook based on a deteriorating selling environment in discretionary items, requiring more markdowns to move through inventory.
“While clearly a negative for TGT, this is a bad development for the retail industry generally, particularly those that play in categories where TGT is most over-inventoried, which are seemingly home and apparel,” said Lejuez.
The analyst said the announcement shows Target is still struggling to adjust to recent trends.
“Looking across retail, because of the size of TGT and its broad competitive set within apparel, this is most bad for Old Navy Gap Inc (GPS), PLCE,CRI, HBI, LEVI, KSS and M,” wrote the analyst. “It’s going to feel like a recession in apparel: With all the debate about the health of the consumer and questions about whether we might see a consumer recession over the next 24 months, we believe regardless of whether this comes to fruition at a macro level by technical definition, it is going to feel like a recession in apparel as we look out to 2H22.”
Lejuez said Target’s quote regarding “aggressive options to control costs, including ongoing work with vendors to help offset inflationary pressures” is an incremental negative for brands with Target as a retail partner, including CRI, HBI, LEVI, and to a lesser extent SHOO.
