Target (TGT) sales could suffer a setback as student loan repayments resume in early September under the debt ceiling, JPMorgan warned Thursday afternoon.
“Focus on the millennial customer and with student loan payments coming up again, the company is more at risk than others in our coverage,” analyst Chris Horvers wrote in a note obtained by Yahoo Finance. “Buy-side customer expectations are in the range of $6 million to $8 million per month consumer outflows based on our conversations, a potential score of 1 to 2 points [comparable] Headwinds for retail spending.
Horvers lowered his rating from “Overweight” to “Neutral”. His new price target is $133 (previously $182).
Target stock was relatively unchanged at $130 as of Thursday afternoon.
The new debt ceiling agreement between the White House and Republicans bars President Joe Biden from extending student loan forbearance. Payments will resume on September 1st.
This comes as the Supreme Court is scheduled to rule this month on the legality of Biden's plan to eliminate student loans of up to $20,000 per borrower.
The resumption of payments could have a negative impact on the economy and, by extension, consumer goods retailers like Target.
“The impact on spending should be moderate over the medium term,” Goldman Sachs chief economist Jan Hatzius said in a new study today. “We expect student loan repayments to detract from personal spending growth by 0.2 percentage point this year if the student loan forgiveness plan is scrapped, or by 0.1 percentage point if the plan stays in place .”
For the broader industry, this means that some already troubled retailers face further challenges.
“The debt issue is absolutely something that the retail industry — particularly some of the most struggling retailers — is absolutely grappling with, and it's challenging,” Sucharita Kodali, retail analyst at Forrester Research, told Yahoo Finance Live (video above). “You have two things against you: You have the fact that demand could slow down at a time when you also have your payments to make and it's not as easy to borrow.”
Kodali added that this would “most likely” lead to more personal bankruptcies in the next 12 to 24 months.
For Target, the student loan news comes at a terrible time.
The company's decision last week to discontinue some LGBTQ-themed merchandise after customer backlash sparked even more global backlash.
Shares are down about 14% over the past week and a half as investors worry about potential second-quarter sales and a hit to profits as a result of the high-profile unrest.
Meanwhile, Target has had another difficult quarter of sales as inflation-stricken shoppers cut back on discretionary purchases like apparel and housewares. Historically for Target, these are the top sellers — and key margin enhancers.
Allegations of organized crime at Target stores are also weighing on the results, executives said.
Horvers believes that, aside from the question of student loan repayments, cautious consumer spending warrants a more cautious stance on Target stock.
“We continue to expect consumers to weaken overall as the wallet share continues to shift away from merchandise (51% of Target sales),” Horvers added.
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