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Investing.com -- Bernstein warned that Target (NYSE: TGT) is the retailer most at risk of missing earnings expectations this quarter as U.S. consumers face mounting financial pressure from inflation and reduced government support.
“As the state of the consumer weakens, our outlook is fairly bleak for retail earnings,” analyst Zhihan Ma said, citing “rising inflation” and delayed/reduced SNAP benefits due to the government shutdown for the first time in the program’s history.
Bernstein added that these factors are “further pressuring low-income consumers into the crucial holiday season.”
The analyst believes there is now a “bifurcation in sentiment,” with higher-income households showing modest improvement while “low-income consumers [are] being the most squeezed.”
Among major retailers, “Target is the most likely to miss,” Bernstein wrote, pointing to credit card data showing “LSD-MSD % sales declines starting in September,” which it notes “does not bode well for the Q3 print.”
On profitability, Ma cautioned that “despite TGT lapping one-time supply chain costs from last year, we expect sales deleverage to weigh on EBIT margin.”
The firm also noted that Target shares have rebounded somewhat from recent lows, but said it expects “another leg down from here” as earnings expectations reset lower.
Bernstein added that the overall retail backdrop remains challenging, with softening consumer demand and rising competitive pressures likely to persist through the end of the year.
“We see near-term risks to the downside for a number of retailers this quarter given the weakening consumer outlook,” the analyst stated.