Target’s (TGT) turnaround plan in focus as Q1 2025 earnings approach

Target Corporation (NYSE: TGT) is undertaking a transformation through multiple initiatives, responding to macroeconomic headwinds and changing consumer behavior.  The focus is on investments in digital capabilities and supply chain as well as enhancing customer experience by offering better value and reliability.

TGT has been one of the worst-performing Wall Street stocks, losing around 39% in the past twelve months. While the stock is showing signs of recovery ahead of next week’s earnings, it continues to stay near recent multi-year lows.

Estimates

The company is preparing to release its first-quarter results on Wednesday, May 21, at 6:30 am ET. It is estimated that adjusted earnings declined to $1.73 per share in Q1 from $2.03 per share last year. Market watchers forecast net sales of $24.46 billion for the April quarter, which is broadly unchanged from the prior-year period.

In the fourth quarter of 2024, the company generated total sales of $30.9 billion, down 3.1% from the same period of the prior year. Total comparable sales increased by 1.5%, with an 8.7% growth in comparable digital sales more than offsetting a 0.5% decline in comparable store sales. Lower sales translated into a 20% fall in net earnings to $1.10 billion or $2.41 per share, both on a reported and adjusted basis. However, the results exceeded Wall Street’s expectations.

Outlook

Anticipating the muted sales and earnings performance to extend into the remainder of the year, the Target leadership recently said it expects FY25 sales to rise a modest 1%, with flat comparable sales. The guidance for full-year earnings per share is $8.80-9.80. The company is planning to invest $4 billion to $5 billion in stores, supply chain, and technology this year as it targets to drive more than $15 billion in revenue growth over the next five years.

Target’s CEO Brian Cornell said in his post-earnings interaction with analysts, “Our level of investment in stores will accelerate as we open more than 20 new stores and remodel many more across the chain. And behind the scenes, we’ll continue to bring our supply chain and stores closer together. Using our proximity to guests to move inventory with more speed, efficiency, and flexibility than ever before. In tandem with our investments in physical shopping spaces are the investments we’re making in our digital experience. Think socially inspired and AI-enhanced.”

Road Ahead

Target has been a favorite shopping destination for most Americans due to its wide collection of products and affordable prices, complemented by strategic partnerships. However, the company is experiencing a slowdown, with competition eating into its market share and higher costs weighing on margins. It also faces a setback from the government’s tariffs, particularly on goods sourced from China, as a significant portion of its products are manufactured internationally. Though trade tensions are easing, higher costs related to new tariffs could put pressure on profitability in the coming months.

On Wednesday, Target’s stock traded lower in early trading, continuing the recent downtrend. The last closing price is well below its 52-week average value of $135.18.