Analysts were voicing support for Target (TGT) - Get Free Report Thursday after the department store operator beat Wall Street's earnings expectations, but cited margin pressures due to supply chain disruptions and labor costs.
Shares of the Minneapolis, Minn. company were down nearly 1% to $251.71 at last check.
On Wednesday, Target reported adjusted earnings of $3.03 cents a share, up 8.6% from a year ago and beating Wall Street's consensus of $2.83 a share. Revenue totaled $25.65 billion, up 13.3% from a year ago and beating analysts' expectations of $24.78 billion.
BMO Capital analysts Kelly Bania, who maintained her outperform rating on the shares and $275 price target, noted the "significant" gross margins miss.
"While 4Q gross margins appear to be a key concern for investors," Bania said, "we believe longer term Target's investment in the customer and value is a prudent strategy, and highlight acceleration of share gains in consumables and discretionary categories, which gives us confidence to raise our F23 comp estimate."
Key Banc analyst Edward Yuma cited a combination of secular tailwinds and strong execution "underpin our constructive view on Target."
"Similar to other retailers, TGT made a push to ensure acceptable in-stock levels for holiday, which came at the expense of NT gross margin," said Yuma, who has an overweight rating and a $280 price target on the shares. "We think this is the right call as it will help it continue to gain market share in what will be a less promotional, but more inventory-challenged, holiday season."
Yuma said he thinks "a higher private brand mix and lower food penetration will make gross margin pressures more transient in nature."
DA Davidson analyst Michael Baker raised his price target on Target to $293 from $285 and kept a buy rating on the shares after its better than expected third-quarter results.
Baker said that margin pressures may persist but the fourth-quarter should be "the worst of it," with supply chain issues becoming most pronounced in front of the rush to get goods in for the holidays but dissipating throughout 2022.
The analysts added that Target continues to take significant marketshare, which could accelerate next year.
Jefferies analyst Stephanie Wissink, who has a hold rating and a $260 price Target, said she is "underwriting a strong holiday" for Target and noted "margins bring a degree of unpredictability."