Target Missing The Mark On Traffic Trends, No Compelling Explanation To Be Found

“Declining traffic trends, particularly without a compelling explanation behind the drivers of the decline, reinforce our view that TGT is a structurally challenged retailer,” Barclays’ Matthew McClintock said in a report. He maintained an Underweight rating on Target Corporation (NYSE: TGT), with a price target of $60.

For Target to achieve its longer-term target of 3 percent comps, it is essential for the company to reverse the current traffic trends, analyst McClintock noted. He added, however, that the transaction with CVS Health Corp (NYSE: CVS) was unlikely to be a significant traffic driver for Target.

CVS Not A Meaningful Traffic Driver

Although Target indicated that the divestiture of its pharmacy business to CVS would be a potential drive traffic, several factors go against this. McClintock enumerated the main reasons as:

• The convenience of one-stop shopping is more likely to attract Target consumers to CVS, rather than the other way around
• Consumers are likely to find a standalone CVS more convenient for one-off prescriptions due to the company’s higher national density and more navigable format

While stating that markets that are new for CVS “represent the greatest potential to drive traffic” to Target, the analyst pointed out that these markets represent less than 4 percent of Target stores and were not likely to have a meaningful impact on the broader company.

McClintock believes that the main benefit of the partnership is that Target would be able to focus on its higher gross margin core business.

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