Target Earnings Tomorrow: Is This the Moment It Finally Closes the Gap on Walmart?

Target reports fiscal third-quarter earnings before the bell on Wednesday in what may be one of the most consequential prints for the stock in years. Expectations are muted, skepticism is high, and the valuation gap versus Walmart has grown so wide that even a modest sign of stabilization could spark meaningful relative-value flows. But with Target carrying heavier exposure to discretionary categories and showing far less resilience than its largest peer, the burden of proof heading into the release rests squarely on Target’s ability to show progress on traffic, margins, and merchandising execution. The setup may feel washed-out—the stock trades at roughly 11x forward earnings versus Walmart’s 35x—but Wall Street wants something more concrete before treating that discount as an opportunity rather than a trap.

What analysts expect: Consensus calls for EPS of $1.71–$1.76 and revenue around $25.3 billion, representing a roughly 1.2% year-over-year decline. Comparable sales are expected to fall 1% to 2%, reflecting an ongoing correction in discretionary categories such as apparel, home, electronics, and seasonal goods. BofA models –1% comps and EPS of $1.67, while Oppenheimer is more conservative at –2%. Analysts widely agree that discretionary weakness remains the defining theme of Target’s current operating environment, with essentials and food providing the only offset.

The market will be laser-focused on a few major metrics: comparable sales (especially traffic), gross margin recovery, shrink trends, and inventory levels. Traffic has been negative all year, though it improved sequentially in Q2, and investors need to see that stabilization continue. Analysts expect transactions to fall ~1% and average ticket to dip 0.4%. On gross margin, BofA sees flat year-over-year results—a meaningful improvement from the declines seen in the first half—thanks to easier comparisons, fewer one-time charges, and moderating shrink benefits. Margin commentary will be critical given tariff exposure, freight volatility, and continued promotional activity across retail categories.

Guidance expectations: Target reaffirmed full-year guidance after Q2, calling for a low single-digit decline in comparable sales, GAAP EPS of $8–$10, and adjusted EPS of $7–$9. Analysts expect management to narrow that EPS range toward the lower end, particularly as pressure from tariffs and a cautious consumer persist into the holiday season. Piper Sandler flagged Target’s large price-cut campaign on 3,000 items ahead of the holidays—necessary for competitiveness but potentially dilutive to margins.

Oppenheimer believes management could trim the top end of full-year EPS guidance but stop short of a full cut. Meanwhile, Truist argues the company is under-investing in merchandising and customer experience, suggesting larger SG&A investments will eventually be required to reignite positive comps.

The discretionary problem—and why it matters now: With Walmart reporting one day later, Target faces an unavoidable comparison. Walmart’s exposure skews toward essentials and food, where spending has remained firm. Target leans far heavier into discretionary categories—the exact areas consumers have been pulling back. University of Michigan consumer sentiment recently fell to its second-lowest reading ever recorded, and with tariffs lifting prices on many household goods, investors fear Target may feel the pinch more acutely than Walmart in Q3 and Q4.

Q2 results underscored this vulnerability. Comparable sales fell 1.9%, store traffic remained negative, and EPS of $2.05 missed consensus. Gross margin declined by 100 bps on inventory-related costs and tariff drag, and while same-day digital services grew more than 25%, profitability remained pressured by fulfillment expense. Digital comparable sales rose 4.3%, but the mix shift continues to weigh on margins.

Still, Q2 did show sequential improvement—store sales trends strengthened, digital improved, and management pointed to “enhanced newness and innovation.” Target Circle 360 and same-day fulfillment remain competitive strengths, and promotional responsiveness has kept Target priced well against Walmart and Amazon in key holiday categories.

CEO transition and strategic priorities: This earnings report also arrives during a leadership transition. Michael Fiddelke, the longtime CFO, will take over as CEO in February 2026. Analysts will be listening closely to his commentary, especially around merchandising authority, investment needs, and how he intends to address the company’s missteps over the past two years. Fiddelke has already emphasized urgency and simplicity, repeatedly saying, “we need to move faster, much faster.”

Analysts want specifics. Truist flagged merchandising and marketing failures as material self-inflicted wounds. BTIG noted a competitive landscape that “isn’t waiting for Target to fix itself.” Oppenheimer, however, thinks the stock has likely bottomed in the high-$80s/low-$90s and sees long-term improvement potential if comps can return to positive sometime in 2026.

Valuation and the Walmart arbitrage angle: This is where things get interesting. At ~11x forward earnings, Target is priced like a struggling retailer. Walmart trades at 35x. That spread is historically extreme. If Target shows even modest progress—stabilizing traffic, a path to margin repair, or cleaner inventory—long/short funds will be quick to rotate out of Walmart and into Target. The implied +/– 8% earnings move suggests the market knows the setup is binary.

If Target stumbles, the stock likely retests its six-year lows. If it over-delivers, even slightly, the valuation alone can power a meaningful snap-back.

Tomorrow morning will tell which side of that trade finally breaks.