Target Takes a Hit: Earnings Miss, Guidance Cut, Tariff Woes Mount

Target (NYSE: TGT) delivered a disappointing fiscal first-quarter report, missing Wall Street expectations on both the top and bottom lines and revising its full-year guidance downward. With a 7% drop in share price following the release, Target is facing increased scrutiny as consumer demand softens and external pressures like tariffs and political backlash further complicate its retail landscape. Despite bright spots in digital growth and a successful designer collaboration, the retailer remains under pressure to revive its brand and earnings trajectory.

For the quarter ended May 3, Target posted adjusted EPS of $1.30, falling well short of analyst estimates of $1.61. GAAP EPS, which includes $593 million in litigation settlement gains, was $2.27 versus $2.03 a year earlier. Net sales came in at $23.85 billion, missing expectations of $24.27 billion and representing a 2.8% decline year-over-year. Comparable sales fell 3.8%, with in-store comps dropping 5.7%, partially offset by a 4.7% gain in digital comp sales. Transactions were down 2.4%, and average transaction size declined 1.4%.

Gross margin fell to 28.2% from 28.8% a year ago, reflecting higher markdowns and increased digital fulfillment costs, though this was partly cushioned by reduced inventory shrink. SG&A expenses declined to 19.3% of sales, but this includes the one-time litigation gain; excluding that, the SG&A rate was 21.7%, up from 21% last year. Operating income rose 13.6% to $1.5 billion, but excluding settlements, the operating margin was just 3.7%, compared to 5.3% a year ago.

Target slashed its full-year outlook, now expecting a low-single digit sales decline versus a prior forecast for modest growth. Adjusted full-year EPS is projected between $7.00 and $9.00, down from prior guidance of $8.80 to $9.80 and below the $8.59 consensus. CEO Brian Cornell cited ongoing discretionary spending weakness, tariff uncertainty, and public backlash to changes in the company’s DEI initiatives as significant headwinds. Of the 35 merchandise categories Target tracks, it gained or held share in only 15, signaling erosion in market competitiveness.

One area of strength was Target Circle 360, which drove a 36% increase in same-day delivery. Digital channels showed resilience, with customers favoring convenience offerings like Drive Up. Seasonal sales around holidays like Valentine’s Day and Easter also outperformed non-holiday periods. Additionally, a limited-time designer collaboration with Kate Spade delivered the strongest results for a fashion partnership in over a decade.

However, discretionary categories continued to suffer. Cornell noted that inflation, waning consumer confidence, and sensitivity to price increases are pressuring spending habits, especially in home décor, apparel, and electronics. CFO Jim Lee flagged higher Q1 costs tied to inventory reduction efforts, including markdowns, though he expects some relief in the second half of the year.

Tariffs were a key topic during the earnings call. Cornell said that pricing remains a last resort to offset rising costs, with the company pursuing alternative mitigation strategies including sourcing diversification, vendor negotiations, and changes to product mix and timing. Currently, about 30% of Target’s private label production is based in China, down from 60% in 2017, and the goal is to reduce that to 25% by the end of 2025.

Strategically, Target is betting on internal restructuring to drive future performance. It announced the formation of an "Enterprise Acceleration Office" led by COO Michael Fiddelke, to simplify operations, enhance agility, and boost cross-functional efficiency. The company also announced the departures of Chief Legal Officer Amy Tu and Chief Strategy Officer Christina Hennington, signaling deeper changes in the executive ranks.

Despite current challenges, management emphasized its commitment to value-driven pricing and brand positioning. Chief Commercial Officer Rick Gomez noted some share gains in beverages, produce, and toddler apparel, reflecting limited traction in essential goods. Still, with inventory up 11.2% from last year and key traffic and transaction metrics down, investors remain cautious.

With shares hovering near $91—a crucial support level—Target needs to demonstrate stabilization in consumer trends, effective margin control, and resilience against policy volatility. Until then, the stock will likely remain under pressure as Wall Street watches for signs of a sustained turnaround.