Target Drops Over 4%, Warns Tariffs May Cut Profits

Target released its latest earnings report, warning that it expects "meaningful year-over-year profit pressure" in the first quarter that began on February 2. The company attributed this to several factors, including "tariff uncertainty" and a decline in net sales last month.

In early trading, Target's stock fell over 4%, breaking below its November low. The stock has already lost more than 10% YTD. 

With nearly 2,000 stores, the company is highly exposed to tariff impacts, as more than three-quarters of its revenue comes from general merchandise such as apparel, electronics, and home decor—most of which are imported.

Target forecasted that comparable sales growth in 2025 would be "around flat," marking the third consecutive year of stagnant or declining sales. In 2024, comparable sales rose by just 0.1%, barely surpassing Wall Street's expectations.

Over the past year, Target's stock has declined by 20%, while the S&P 500 Consumer Staples Index has gained 17%. The company has struggled as inflation-weary consumers cut back on discretionary spending. Additionally, Target faces growing competition from Walmart, which has aggressively targeted high-income shoppers who traditionally favored Target.

"During February, we saw record performance around Valentine's Day. However, our top-line performance for the month was soft, as uncharacteristically cold weather across the US affected apparel sales, and declining consumer confidence impacted our discretionary assortment overall," said Jim Lee, Target's chief financial officer.

In 2024, Target reported an operating margin of 5.2%, down from 5.3% in 2023 and falling short of management's 6% target. The company expects only a "modest increase" in its operating margin this year.