Target Q4 Results Top Estimates But Retailer Warns of 'Tariff Uncertainty'

Target Corporation (NYSE: TGT) reported its fourth-quarter and full-year 2024 financial results on March 4, 2025, with Q4 comparable sales growing 1.5% and digital sales increasing 8.7%. Despite the strong holiday season performance, the retailer cautioned investors about the potential impact of "tariff uncertainty" on its 2025 outlook.

Q4 Results: A Mixed Bag

Target's Q4 results reflected a mixed performance picture, with both encouraging signs and notable challenges. The company delivered Q4 EPS of $2.41, near the high end of its guidance range, driven by stronger-than-expected topline performance, particularly in Toys, Electronics, and Apparel. Full-year 2024 comparable sales grew 0.1%, within the guidance range provided at the beginning of the fiscal year. However, the operating margin compressed to 4.7% (from 5.8% in Q4 2023), raising concerns about cost pressures.



Beauty Segment Growth and Same-Day Delivery Success

The Beauty segment delivered mid-single-digit comparable sales growth, while Food & Beverage, Apparel, and Essentials also saw growth. Same-Day delivery powered by Target Circle 360 grew more than 25% compared to last year, indicating Target's investments in digital capabilities and convenience are yielding results.

Margin Pressures and Consumer Behavior Shifts

The 26.2% gross margin (down from 26.6% last year) coupled with rising SG&A expenses (19.4% vs. 18.8%) creates a concerning cost structure trend. Higher digital fulfillment and supply chain costs, as well as higher promotional and clearance markdown rates, are putting pressure on Target's margins. The divergence between traffic growth (+1.4% for the year) and minimal comp sales growth suggests that consumers are making more frequent visits but with smaller basket sizes, indicating value-seeking behavior.



Cautious Outlook for 2025

Target expects net sales growth around 1% and comparable sales growth around flat for 2025, with a modest increase in its operating margin rate compared to 2024. However, the company warned about "meaningful year-over-year profit pressure" in its first quarter relative to the remainder of the year, citing soft February performance due to cold weather affecting apparel sales and declining consumer confidence impacting discretionary purchases.

Tariff Uncertainty and Consumer Confidence

Target's cautious outlook is driven by several key factors, including "tariff uncertainty" and declining consumer confidence. The uncertainty surrounding tariffs makes it difficult for Target to plan and manage its supply chain, inventory, and pricing strategies. Declining consumer confidence could lead to reduced spending on discretionary items, such as those sold by Target. In February 2025, the U.S. consumer confidence index fell to an eight-month low, reflecting concerns about inflation and economic uncertainty.

Conclusion

Target's Q4 results highlight a mixed performance picture, with both encouraging signs and notable challenges. While the company is successfully adapting to some trends, such as the growth in Apparel and Hardlines, Beauty, and same-day delivery, it is also facing significant challenges in the form of margin pressures and changing consumer spending patterns. Target's cautious outlook for 2025 reflects the retailer's concerns about tariff uncertainty and declining consumer confidence, which could impact its sales and profitability. As Target navigates these challenges, investors will be watching closely to see how the company adapts to the evolving retail landscape.