TLDR
- Target reported Q4 comparable sales growth of 1.5%, beating estimates of 1.3%
- Full-year 2025 outlook forecasts flat comparable sales growth, below analysts’ expectations of 1.86%
- New tariffs on Mexican, Canadian, and Chinese imports are expected to impact prices and profits
- February sales were soft due to cold weather affecting apparel and declining consumer confidence
- Target expects “meaningful year-over-year profit pressure” in Q1 2025
Target Corporation reported better-than-expected results for its holiday quarter but warned of near-term challenges ahead. The retailer is navigating a complex environment of new tariffs and cautious consumer spending that will likely impact its performance in the coming months.
Target’s fourth-quarter comparable sales increased by 1.5%, exceeding analyst expectations of 1.3%. This growth was driven by strong traffic and digital performance.
Digital comparable sales grew 8.7% in the quarter. Same-day delivery powered by Target Circle 360 grew more than 25% compared to last year.
The Minneapolis-based retailer reported earnings of $2.41 per share for the quarter ended February 1. This represented a 19.3% decline from the previous year but still beat analyst estimates of $2.27 per share.
Beauty, apparel, toys, and sporting goods were top performers during the holiday quarter. In contrast, home decor and furnishing sales were negative.
Target’s strategic partnerships helped drive holiday sales. The company partnered exclusively with pop star Taylor Swift and attracted Black Friday shoppers with Swift’s Eras Tour book and vinyl albums.
Full-year 2024 comparable sales grew just 0.1%, which was within the guidance range provided at the beginning of the fiscal year. GAAP and Adjusted EPS for the full year was $8.86.
Target forecasts 2025 comparable sales to be “around flat”
Looking ahead, Target forecasts full-year 2025 comparable sales to be “around flat.” This falls significantly below analysts’ average estimate of 1.86% growth.
The company expects earnings per share of $8.80 to $9.80 for the full year. While this forecast is largely in line with analyst estimates, Target warned of “meaningful year-over-year profit pressure” in its first quarter.
Several factors are contributing to this cautious outlook. New 25% tariffs on imports from Mexico and Canada took effect on March 4, along with a doubling of duties on Chinese goods to 20%.
Target’s CEO Brian Cornell told CNBC that prices could increase over the next couple of days for seasonal produce such as avocados. The company depends on Mexico “for a significant amount of supply” for these categories.
February sales were “soft” according to the company. Uncharacteristically cold weather across the U.S. affected apparel sales, and declining consumer confidence impacted discretionary purchases overall.
Target’s CFO Jim Lee stated, “We will continue to monitor these trends and will remain appropriately cautious with our expectations for the year ahead.”
The forecast does not fully account for the impact of tariffs
The company’s annual forecast does not yet fully account for the impact of tariffs. A Target spokesperson noted that consumers continue to be stressed, and at least some of the noise surrounding the levies hit sales in February.
Target has also faced some backlash for ending its diversity and inclusion initiatives in January. Foot traffic at Target stores dropped 6.1% on average from January 27 through February 23, according to data from Placer.ai.
Despite these challenges, Target’s shares were up about 1% in premarket trading following the earnings release. Investors seemed to focus on the better-than-expected holiday quarter results rather than the cautious outlook.
The retailer continues to invest in its digital capabilities, stores, and supply chain. These investments, combined with a focus on newness, value, speed, and reliability, aim to differentiate Target’s shopping experience.
Target’s ongoing efficiency efforts have delivered cost savings of more than $2 billion over the last two years. The company expects a modest increase in its operating margin rate compared to full-year 2024.
For the trailing twelve months through fourth quarter 2024, Target’s after-tax return on invested capital was 15.4%. This was down from 16.1% for the twelve months through fourth quarter 2023.
The company paid dividends of $513 million in the fourth quarter and repurchased $506 million of its shares. Target still has approximately $8.7 billion of remaining capacity under its current share repurchase program.
The retail environment remains challenging as consumers continue to be selective with their spending. Target’s management is taking a cautious approach while still investing in areas they believe will drive long-term growth.
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