Target Losing Billions in Value Is Unlikely About Boycotts

Since May 17, Target's stock price has been trending downwards amid calls for a boycott of the retailer over its LGBTQ+ pride range, losing nearly 20 percent in value in the past two weeks.

The rapid decline in the company's market valuation has been heralded by some as a sign of the boycott of the brand working, with $14 billion knocked off its market capitalization—the total value of Target shares.

However, one market analyst told Newsweek that the recent backlash had precipitated a "probably negligible" effect on investor sentiments, with the most likely cause of the stock sell-off being a first quarter earnings report on May 17 which announced flat sales and a gloomy forecast for the rest of 2023.

Jeremy Bowman, a contributing analyst at The Motley Fool, an investment advice firm, suggested that the latest results showed Target's coronavirus pandemic boom was over, and its valuation was being readjusted to its new sales expectations.

Target's pride range, which appeared in stores around May 10, included rainbow-colored children's clothes, a T-shirt with the slogan "trans people will always exist," and a onesie with the words "bien proud" in the colors of the LGBTQ+ flag.

The retail giant is not the only brand to face calls for a boycott over its advocacy for the LGBTQ+ community of late. While experts have said such campaigns provide an opportunity for brands to appeal to consumers in new markets, critics have accused companies of alienating their traditional customer base.

In a statement to Newsweek on May 23, Kayla Castaneda, a spokesperson for Target, said it would be removing items from the range that had been the focus of "threats" towards staff, specifically those "at the center of the most significant confrontational behavior."

As outrage over the range—in particular, "tuck-friendly" swimsuits aimed at transgender people, which were erroneously identified as being marketed at children—spiralled on social media, Target's stock price went from $161.38 on May 17 to sitting at $132.19 as of June 1.

While several news outlets—including the Daily Mail, Fox News and Newsweek itself—suggested the decline in stock price was linked to the potential boycott, Bowman argued that investor sentiments were rarely moved by such socio-political changes.

"Often, there's these short-term things that the market tends to ignore," he said. "As an example, on January 6 [2021], the day of the Capitol riots, the stock market actually rose that day, which I think is pretty surprising, even to me."

Bowman added: "The market generally looks past these social unrests or social/political issues if there isn't really a specific economic angle."

In the first few days of the controversy, Target's stock price actually rose slightly, trending upwards from $155.21 on May 10 to $157.28 on May 16—the day before the earnings report was released.

Bowman noted that the backlash the company had received over the LGBTQ+ pride range "doesn't make Target look that good," and it seemed by withdrawing certain items "they're maybe offending both sides of the political spectrum," which was a position "I don't think any company wants to be in." A leading brand strategist previously aligned with this view in an interview with Newsweek.

But Bowman said: "It's hard for me to see that really having a meaningful or lasting effect on their business."

Instead, investor sentiments appear to have adapted to the retail giant's latest sales figures. In its first-quarter earnings announcement, Target reported "flat" comparable sales for the first three months of 2023 compared to the same period last year, with an operating income of $1.3 billion—down 1.4 percent on the first quarter of 2022.

"It wasn't really great results," Bowman commented. "Their comparable sales—which is the sales that they generate from the same store base, so it eliminates any new stores—was basically flat year over year."

Meanwhile, net earnings—the income of a company after expenses have been deducted—were down 5.8 percent in the three months to April 29, compared to the same time in 2022, a drop of around $59 million.

"We came into the year clear-eyed about the challenges consumers are facing," Brian Cornell, Target CEO, said in an earnings statement, adding that the company was "focused on managing the financial impact on our business so we can continue to keep our stores open."

While he said profitability was "ahead of expectations," shrink—a loss of inventory—"will reduce this year's profitability by more than $500 million compared with last year." Cornell said there were "many sources" for this, but theft and organized retail crime "are increasingly important drivers."

Bowman said of the projected $500 million lost to shrink: "Even for a company the size of Target, that's pretty extraordinary. That's another issue that seems to have crept up out of nowhere."

"The decline in the stock prices is mostly a reflection of those challenges and the reality of the growth trajectory, in that profits are still down pretty considerably from their peak during the pandemic," he added.

Target "did really well during the pandemic," Bowman said, largely because stores provided a wide range of goods in one place, and were able to sell online as well as offer kerbside pickup when pandemic restrictions were in place. Unlike Walmart, which operates a similar business model, Target has outlets in "almost every community in the country."

The retailer's stock price reflected its boost in pandemic earnings in that period: it trended upwards from $91.18 a share on April 3, 2020, to peak at $261.42 on August 13, 2021. That price remained elevated through 2021 and into the following year, before a sharp drop to $153.15 in May 2022.

"What's happening now is they have a bit of a hangover from that boom," Bowman said. "They had huge growth for a couple of years and now they're struggling to keep up that momentum and absorb the inflationary costs that they're paying."

Asked about where the price was likely to go as 2023 progresses, he remarked: "It's about down to where its valuation was maybe [at] pre-pandemic levels—so they've lost that premium that they had earned during the pandemic... I would say it's fairly valued at this point, I'd be surprised if it declined by another 15 percent."

Newsweek approached Target via email for comment on Thursday.