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Higher debt and tariff pressures continue to challenge TGT's financial flexibility and profitability.
Digital expansion, AI integration and trend-led assortments are driving operational progress.
Target Corporation (TGT - Free Report) has experienced a steep decline over the past three months, with its shares tumbling 14.5%, underperforming the Zacks Retail - Discount Stores industry's dip of 1.3%. The company also trailed the Retail-Wholesale sector’s growth of 2.7% and the S&P 500's rally of 9.3% during the same period.
TGT’s Past 3 Months’ Performance
Image Source: Zacks Investment Research
Intensifying competition, operational hurdles and tariff-related pressures have weighed on Target’s share price. A softer-than-expected second-quarter fiscal 2025 performance also hurt investor sentiment. Margin pressures from markdowns and order cancellations have strained profitability, yet sequential gains in sales and traffic indicate some signs of stabilization.
Target has also underperformed its peers, including Walmart Inc. (WMT - Free Report) , Dollar General Corporation (DG - Free Report) and Costco Wholesale Corporation (COST - Free Report) .
Shares of Walmart have rallied 7.8%, whereas shares of Dollar General and Costco have declined 12.8% and 2.8%, respectively, over the same period.
TGT vs. Peer Performances
Image Source: Zacks Investment Research
Closing at $89.10 yesterday, the TGT stock stands 44.8% below its 52-week high of $161.50 reached on Oct. 15, 2024. Target is trading below its 50 and 200-day simple moving averages of $94.64 and $104.83, respectively, signaling bearish sentiment in maintaining the recent performance levels.
TGT Trades Below 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
The recent slide in the stock has contributed to Target’s discounted status. This leading general merchandise retailer is currently trading at a compelling discount relative to its industry. The TGT stock trades at a forward 12-month price-to-earnings (P/E) ratio of 11.25, lower than the industry’s average of 29.40.
TGT P/E Ratio (Forward 12 Months)
Image Source: Zacks Investment Research
Walmart, Dollar General and Costco are all trading at higher forward P/E ratios of 36.08, 15.21 and 46.66, respectively, compared with Target.
What’s Behind TGT’s Dismal Stock Run?
Target continues to face challenges in regaining momentum amid a volatile retail landscape. The company’s second-quarter fiscal 2025 results fell short of management’s expectations, with comparable sales declining 1.9% year over year, marking another period of contraction.
This weakness was led by a 3.2% drop in comparable store sales despite growth in comparable digital sales. Overall traffic slipped 1.3%, while the average transaction size decreased 0.6%. We anticipate fiscal 2025 comparable sales to decline 2%.
Margins remained under strain. The gross margin narrowed by 100 basis points year over year, pressured by increased markdowns, purchase order cancellation costs and an unfavorable category mix. The operating margin fell 120 basis points to 5.2%, down from 6.4% in the same quarter last year. Reduced inventory shrink provided some relief. Yet, earnings per share (EPS) declined to $2.05 from $2.57 a year earlier.
Although management expects these headwinds to ease, continued volatility in tariffs may keep margins under pressure. We foresee both gross and operating margins to shrink 20 and 10 basis points, respectively, for the full year.
Moreover, Target’s long-term debt climbed to $15.3 billion in the second quarter from $13.7 billion a year earlier, driving interest expenses to $116 million. While these numbers remain manageable relative to Target’s overall scale, the trend is concerning at a time when sales and margins are still under strain.
For fiscal 2025, Target expects a low-single-digit decline in sales. The company reaffirmed its full-year adjusted EPS guidance of $7.00-$9.00, though the broad range underscores ongoing uncertainty. Volatility in consumer demand and tariff-related pressures remain key risks, prompting management to maintain a cautious outlook.
Downward Estimate Revisions Signal Pressure on TGT’s Earnings
Reflecting cautious sentiment around Target, the Zacks Consensus Estimate for EPS has seen downward revisions. Over the past seven days, the consensus estimates for the current and next fiscal years have declined by three cents to $7.46 and two cents to $8.13 per share, respectively.
Image Source: Zacks Investment Research
Target’s Game Plan to Overcome Current Challenges
TGT is making progress in navigating a challenging retail environment by leveraging its strong brand equity, diverse product assortment and operational discipline. Its digital performance remains a key growth driver, with comparable online sales rising 4.3% year over year in the second quarter. Same-day delivery through Target Circle 360 jumped more than 25%, underscoring how digital convenience and membership benefits are enhancing customer loyalty.
The company’s profitable digital ecosystem also supports higher-margin ventures, such as Roundel and Target Plus, both of which continue to expand. In the second quarter, Target deployed more than 10,000 AI licenses to enhance forecasting accuracy, automate manual processes and improve replenishment. These advancements contributed to the company’s best on-shelf availability in years and bolstered the reliability of its digital fulfillment operations.
Merchandising efforts are gaining traction as well. The newly introduced FUN 101 strategy infused cultural relevance and innovation into hardlines, driving more than 5% category growth — the strongest performance since 2021. Trading cards, tech accessories and the Nintendo Switch 2 were notable standouts, while apparel, and food and beverage benefited from trend-right and fresh assortments.
Operationally, Target achieved its strongest on-shelf availability metrics in several years, reflecting enhanced supply-chain efficiency and inventory management. Inventory value rose just 2% year over year, while units declined modestly, signaling greater efficiency despite ongoing tariff pressures. Expense discipline remained solid, with SG&A slightly below last year’s reported level.
How to Play TGT Stock: Buy, Hold or Sell?
While Target faces significant headwinds from competition, operational challenges and tariff-related pressures, there are early signs of stabilization in sales and traffic, supported by digital growth, innovative merchandising and operational improvements. For current and potential investors, this means caution is warranted.
Target’s turnaround is in progress but not yet fully secured. Those with a higher risk tolerance may consider selective exposure to the stock, while more conservative investors should monitor the company’s execution on digital and operational initiatives before committing.
Image: Bigstock
Target Stock Tumbles 15% in 3 Months: Buy the Dip or Stay Cautious?
Key Takeaways
Target Corporation (TGT - Free Report) has experienced a steep decline over the past three months, with its shares tumbling 14.5%, underperforming the Zacks Retail - Discount Stores industry's dip of 1.3%. The company also trailed the Retail-Wholesale sector’s growth of 2.7% and the S&P 500's rally of 9.3% during the same period.
TGT’s Past 3 Months’ Performance
Image Source: Zacks Investment Research
Intensifying competition, operational hurdles and tariff-related pressures have weighed on Target’s share price. A softer-than-expected second-quarter fiscal 2025 performance also hurt investor sentiment. Margin pressures from markdowns and order cancellations have strained profitability, yet sequential gains in sales and traffic indicate some signs of stabilization.
Target has also underperformed its peers, including Walmart Inc. (WMT - Free Report) , Dollar General Corporation (DG - Free Report) and Costco Wholesale Corporation (COST - Free Report) .
Shares of Walmart have rallied 7.8%, whereas shares of Dollar General and Costco have declined 12.8% and 2.8%, respectively, over the same period.
TGT vs. Peer Performances
Image Source: Zacks Investment Research
Closing at $89.10 yesterday, the TGT stock stands 44.8% below its 52-week high of $161.50 reached on Oct. 15, 2024. Target is trading below its 50 and 200-day simple moving averages of $94.64 and $104.83, respectively, signaling bearish sentiment in maintaining the recent performance levels.
TGT Trades Below 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
The recent slide in the stock has contributed to Target’s discounted status. This leading general merchandise retailer is currently trading at a compelling discount relative to its industry. The TGT stock trades at a forward 12-month price-to-earnings (P/E) ratio of 11.25, lower than the industry’s average of 29.40.
TGT P/E Ratio (Forward 12 Months)
Image Source: Zacks Investment Research
Walmart, Dollar General and Costco are all trading at higher forward P/E ratios of 36.08, 15.21 and 46.66, respectively, compared with Target.
What’s Behind TGT’s Dismal Stock Run?
Target continues to face challenges in regaining momentum amid a volatile retail landscape. The company’s second-quarter fiscal 2025 results fell short of management’s expectations, with comparable sales declining 1.9% year over year, marking another period of contraction.
This weakness was led by a 3.2% drop in comparable store sales despite growth in comparable digital sales. Overall traffic slipped 1.3%, while the average transaction size decreased 0.6%. We anticipate fiscal 2025 comparable sales to decline 2%.
Margins remained under strain. The gross margin narrowed by 100 basis points year over year, pressured by increased markdowns, purchase order cancellation costs and an unfavorable category mix. The operating margin fell 120 basis points to 5.2%, down from 6.4% in the same quarter last year. Reduced inventory shrink provided some relief. Yet, earnings per share (EPS) declined to $2.05 from $2.57 a year earlier.
Although management expects these headwinds to ease, continued volatility in tariffs may keep margins under pressure. We foresee both gross and operating margins to shrink 20 and 10 basis points, respectively, for the full year.
Moreover, Target’s long-term debt climbed to $15.3 billion in the second quarter from $13.7 billion a year earlier, driving interest expenses to $116 million. While these numbers remain manageable relative to Target’s overall scale, the trend is concerning at a time when sales and margins are still under strain.
For fiscal 2025, Target expects a low-single-digit decline in sales. The company reaffirmed its full-year adjusted EPS guidance of $7.00-$9.00, though the broad range underscores ongoing uncertainty. Volatility in consumer demand and tariff-related pressures remain key risks, prompting management to maintain a cautious outlook.
Downward Estimate Revisions Signal Pressure on TGT’s Earnings
Reflecting cautious sentiment around Target, the Zacks Consensus Estimate for EPS has seen downward revisions. Over the past seven days, the consensus estimates for the current and next fiscal years have declined by three cents to $7.46 and two cents to $8.13 per share, respectively.
Image Source: Zacks Investment Research
Target’s Game Plan to Overcome Current Challenges
TGT is making progress in navigating a challenging retail environment by leveraging its strong brand equity, diverse product assortment and operational discipline. Its digital performance remains a key growth driver, with comparable online sales rising 4.3% year over year in the second quarter. Same-day delivery through Target Circle 360 jumped more than 25%, underscoring how digital convenience and membership benefits are enhancing customer loyalty.
The company’s profitable digital ecosystem also supports higher-margin ventures, such as Roundel and Target Plus, both of which continue to expand. In the second quarter, Target deployed more than 10,000 AI licenses to enhance forecasting accuracy, automate manual processes and improve replenishment. These advancements contributed to the company’s best on-shelf availability in years and bolstered the reliability of its digital fulfillment operations.
Merchandising efforts are gaining traction as well. The newly introduced FUN 101 strategy infused cultural relevance and innovation into hardlines, driving more than 5% category growth — the strongest performance since 2021. Trading cards, tech accessories and the Nintendo Switch 2 were notable standouts, while apparel, and food and beverage benefited from trend-right and fresh assortments.
Operationally, Target achieved its strongest on-shelf availability metrics in several years, reflecting enhanced supply-chain efficiency and inventory management. Inventory value rose just 2% year over year, while units declined modestly, signaling greater efficiency despite ongoing tariff pressures. Expense discipline remained solid, with SG&A slightly below last year’s reported level.
How to Play TGT Stock: Buy, Hold or Sell?
While Target faces significant headwinds from competition, operational challenges and tariff-related pressures, there are early signs of stabilization in sales and traffic, supported by digital growth, innovative merchandising and operational improvements. For current and potential investors, this means caution is warranted.
Target’s turnaround is in progress but not yet fully secured. Those with a higher risk tolerance may consider selective exposure to the stock, while more conservative investors should monitor the company’s execution on digital and operational initiatives before committing.
At present, TGT carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.