Target Just Drew a Line at $85 — Is This the Start of a Comeback or the Mother of All Value Traps?

Target’s third-quarter report landed like most of its recent earnings days: not a disaster, but nowhere near a clean inflection – and that’s exactly why the stock is back testing a make-or-break level around $85, a multi-year bottom last hit on October 10. With Walmart set to report tomorrow and Target trading at roughly 11x forward earnings, the question hanging over the tape is simple: is this a deeply discounted turnaround, or a classic value trap in a structurally weaker retailer?

On the headline numbers, the quarter was mixed but broadly in line. Net sales fell 1.5% year over year to $25.3 billion, roughly matching expectations, while adjusted EPS of $1.78 came in essentially in line to modestly above consensus. Comparable sales declined 2.7%, worse than expectations for about a 2% drop, marking the 10th quarter out of the last 12 with flat or negative comps. Store comps fell 3.8%, partially offset by 2.4% digital comp growth, led by more than 35% growth in same-day delivery via Target Circle 360. That mix tells the story: Target is leaning on digital convenience and membership while store traffic remains under pressure.

Category performance continues to show a split consumer. Food & Beverage and Hardlines – including the internally branded “Fun 101” toys and sporting goods push – delivered comp growth, but the broader discretionary portfolio (home, apparel, décor) stayed soft. Non-merchandise revenue was a bright spot, up nearly 18%, with Roundel advertising, memberships, and marketplace revenue all growing double digits. That higher-margin ecosystem is exactly what Target needs more of, but it’s not yet big enough to offset the drag from weaker core discretionary spending.

Margins and expenses were a reminder of how narrow the runway is. Gross margin came in at 28.2%, essentially flat versus 28.3% last year. Management cited pressure from increased markdowns, partially offset by growth in advertising and other revenues, lower inventory shrink, and efficiency gains in supply chain and digital fulfillment. Operating income was $0.9 billion including non-recurring charges, down 18.9% year over year; excluding those items, operating income was $1.1 billion and the operating margin rate was 4.4% versus 4.6% a year ago. SG&A expense rate, excluding non-recurring items, was 21.3%, flat with last year – decent discipline, but not enough to stop margin erosion when comps are negative and markdowns are rising.

Management was candid about the consumer backdrop. Incoming CEO Michael Fiddelke and Chief Commercial Officer Rick Gomez both emphasized that shoppers remain “choiceful,” stretching budgets, prioritizing value, and focusing on what “goes under the tree versus what goes on the tree.” Transaction counts fell 2.2% in the quarter, while average ticket rose 2.4% – classic behavior for a strained shopper: fewer trips, more careful baskets. Discretionary categories like home and apparel lagged as guests traded down and hunted for deals, while food, essentials, and beauty held up better.

That’s the context for Fiddelke’s turnaround playbook. Target plans to lift annual capex from roughly $4 billion to $5 billion, a 25% jump, to refresh and remodel stores and roll out larger-format locations. Leadership is describing the coming assortment and floorplan changes as some of the biggest in years. The company is doubling down on price perception, cutting prices on 3,000 everyday food and essentials items, promoting Thanksgiving meals for four under $20, turkey at 79 cents per pound, and stuffing the holiday assortment with over 20,000 new items, more than half of them exclusive to Target and thousands of toys under $20.

Operationally, the “stores-as-hubs” model remains central. Target is investing to improve same-day fulfillment, expand next-day shipping to more than half of U.S. households, and deepen engagement with its Target Circle 360 membership. Inventory was trimmed 2% year over year – a far cry from the overstock issues of prior years – and the company still returned cash to shareholders with $518 million in dividends and $152 million in buybacks in the quarter, leaving $8.3 billion of repurchase capacity.

On the technology front, the new OpenAI partnership is a notable strategic swing. Target will roll out a ChatGPT integration in beta next week, positioning itself as one of the first retailers on OpenAI’s platforms to enable multi-item shopping carts, fresh food offerings, and the ability to choose drive-up and pickup fulfillment directly through the AI interface. Internally, the company will continue leaning on ChatGPT Enterprise with Microsoft to support operations. In an environment where Walmart and Amazon are aggressively automating the customer journey, this is less about optics and more about not falling another step behind.

Guidance didn’t provide a clear catalyst. For Q4, management maintained expectations for a low-single-digit decline in sales, signaling no imminent rebound in comps. Full-year GAAP EPS is now pegged at $7.70–$8.70, with adjusted EPS of $7–$8, narrowed from the prior $7–$9 range. That compares to $8.86 in the prior fiscal year and sits well below Target’s original 2025 guidance of $8.80–$9.80. The trailing 12-month ROIC has slipped to 13.4% from 15.9%, a reminder that returns are compressing even as capex is set to rise.

Layered on top is CEO succession. Longtime CEO Brian Cornell hands the reins to Fiddelke on February 1, 2026, with the incoming chief making it clear that his priorities are reestablishing merchandising authority, elevating the guest experience, and “further harnessing the power of technology” to get back to growth “as quickly as possible.” The Street, for now, is skeptical. Target shares are down about 35% year to date, dramatically trailing Walmart and even Costco, and several high-profile analysts remain Neutral or Underperform, flagging higher tariff exposure, slower digital scale, competitive pressure from Walmart and Amazon, and execution risk around merchandising and partnerships.

That brings it back to the stock. At around 11x forward earnings and parked near $85 – a level that has acted as multi-year support – the setup is binary. If Fiddelke’s plan can stabilize comps, protect margins, and grow higher-margin ecosystems like advertising, memberships, and AI-enabled digital engagement, today’s multiple will look washed-out versus Walmart’s mid-30s. If not, investors will increasingly see Target not as a cheap way to play the U.S. consumer, but as a structurally disadvantaged retailer with shrinking relevance, eroding returns, and a value trap label it will struggle to shake.