Target Earnings Preview: Low Bar, High Scrutiny as Retailer Struggles With Identity and Tariff Pressures

Target (NYSE: TGT) heads into tomorrow morning’s earnings report with expectations about as low as its share price has been in years. The retailer has struggled to find its footing in a challenging consumer environment, weighed down by its heavy exposure to discretionary categories at a time when shoppers are more focused on essentials. Unlike peer Walmart (WMT), which has leaned into groceries and value and managed to deliver steady gains, Target has been caught in a conundrum: should it double down on fashion and home, which made it a pandemic darling, or shift more aggressively toward everyday basics and price leadership? That strategic identity crisis, coupled with softer traffic and tariff headwinds, has left the stock lagging its larger rival.

Expectations and Analyst Outlook

Heading into the print, Wall Street’s expectations are muted. Consensus calls for adjusted EPS of $2.04 on revenues of $24.9 billion, both down sharply from last year—EPS lower by 21% and revenue lower by 2.2%. Comparable sales are expected to fall around 3%, with both transaction counts and average basket size under pressure.

Analysts have taken the knife to their models in recent weeks: there have been 30 downward EPS revisions and 25 revenue cuts over the past month, compared with just three upward revisions for each. It’s a clear signal that sentiment is already deeply negative. Some believe that simply meeting these conservative numbers—or modestly beating them—could be enough to spark a relief rally, especially with shares down 24% year-to-date and trading at just 12–13x forward earnings.

Opco expects comps could come in above consensus, though margins are likely to show a “material profit decline” due to softer top-line growth, tariff-related pressures, and costs tied to inventory adjustments. Evercore takes a more tactical view, arguing that with expectations already anchored near the low end of guidance, the stock could jump into the $110–115 range if results surprise to the upside. Bank of America is less generous, having recently downgraded the stock to Underperform with a $93 price target, citing structural challenges in digital, merchandising, and margin scale compared to Walmart and Amazon (AMZN).

Guidance and Management Commentary

Target currently guides for full-year adjusted EPS of $7 to $9, a notably wide range that reflects uncertainty around tariffs, consumer spending, and margin headwinds. CFO Jim Lee said in May that “this wider range reflects the expected impact of tariffs and heightened uncertainty regarding the economy and consumer spending.” Analysts believe management is likely to stick with this range despite the challenges, though any narrowing toward the lower end would be taken as a cautious signal.

Sales are expected to decline in the low single digits for the year, consistent with Q1’s performance. Profitability remains pressured, with management highlighting incremental costs from tariff responses, inventory adjustments, and slower-than-expected sales.

Q1 Recap and Learnings for Q2

Last quarter was sobering. Comparable sales fell 3.8%, with traffic down 2.4% and average ticket down 1.4%. Total sales declined 2.8% to $24.5 billion. Adjusted EPS was just $1.30, well below the prior year’s $2.03. Gross margin slipped to 28.2% amid markdowns and supply chain costs, partially offset by lower shrink.

CEO Brian Cornell acknowledged “an exceptionally challenging environment” with traffic and sales declines “most notably in our discretionary categories.” He announced the creation of an Enterprise Acceleration office to help streamline strategy and execution—an implicit acknowledgment that Target needs to move faster to adapt.

Still, there were bright spots. Digital sales grew mid-single digits, with same-day services up 36%, led by the Target Circle 360 program. The company’s advertising arm, Roundel, continues to generate high-margin growth. Management has also emphasized a steady cadence of new product launches, like Nintendo Switch 2 and Champion collaborations, to re-energize discretionary spending.

Key Themes to Watch

Comparable Sales Trends – Analysts expect around -3% for Q2. Any moderation in declines—or signs of improvement in back-to-school sales—could reset sentiment.

Margin Pressure – Tariffs remain a swing factor. While management says it can offset “the vast majority” through sourcing diversification and vendor collaboration, any incremental erosion here would weigh heavily.

Traffic vs. Ticket – Walmart has shown stronger traffic momentum; Target has struggled to drive store visits. Investors will parse whether promotions or loyalty programs (like Target Circle) are making a dent.

Inventory and Markdown Risk – Inventories were up 11% y/y last quarter. Management has promised to “right size,” but further markdowns could squeeze margins.

Digital and Omnichannel Growth – Same-day services, curbside pickup, and delivery remain critical growth engines. Continued gains here could offset discretionary weakness.

Guidance for FY25 – Will management reiterate the $7–$9 EPS range? A reiteration could be viewed positively, but narrowing toward the lower end would dampen sentiment.

Strategic Direction – Target remains at a crossroads between its heritage as a “cheap chic” destination and the realities of value-driven shopping. Any signals about prioritizing price competitiveness or partnerships (to fill the Ulta hole, for example) will be closely watched.

The Bigger Picture

Compared to peers, Target looks vulnerable. Walmart continues to post strong comps, with analysts expecting nearly 5% growth last quarter, thanks to grocery dominance and pricing power. Costco (COST) has kept growing share with its membership model. Amazon remains an ever-present digital competitor. Bernstein even asked if Target is “the next Best Buy,” pointing to existential questions about its long-term positioning in an Amazon/Walmart-dominated landscape.

And yet, for all the challenges, the valuation offers some cushion. At a P/E below 15, Target trades at a steep discount to Walmart (37x) and Costco (52x). That leaves room for upside if management can stabilize comps, contain margin erosion, and show a path back to growth.

Final Take

Target enters tomorrow’s earnings report with low expectations, bearish sentiment, and little room for missteps. But with the stock down sharply, the bar is set low. If comps beat the -3% bogey, margins hold up better than feared, or management reaffirms full-year EPS guidance, a relief rally is possible. Still, the longer-term questions remain: which consumer is Target targeting, and can it credibly compete with Walmart on value or Amazon on convenience? Until that conundrum is resolved, volatility will likely remain the defining theme for investors.