Target tops expectations; Can it hold $120 as tariff headwinds blow?

Target Corporation (NYSE: TGT) reported its fourth-quarter and full-year 2024 earnings, exceeding expectations on both the top and bottom lines, but issued cautious guidance amid concerns over consumer spending trends and potential tariff impacts.

Earnings and Revenue Beat Expectations

Target delivered adjusted earnings per share (EPS) of $2.41 in Q4, surpassing analyst estimates of $2.25. Revenue came in at $30.92 billion, slightly ahead of the expected $30.38 billion. Comparable sales rose by 1.5%, outperforming expectations of 1.18%, driven by strong traffic growth and an 8.7% increase in digital sales. However, store-originated sales fell by 0.5%, reflecting ongoing shifts in consumer purchasing behavior.

Expectations for the quarter had been subdued, with analysts anticipating a cautious consumer base pulling back on discretionary spending amid inflationary pressures. The company’s operating margin of 4.7% narrowly exceeded estimates of 4.59%, but still represented a year-over-year decline as increased promotional activity and higher supply chain costs weighed on profitability.

Consumer Spending Concerns and Tariff Worries

Target CEO Brian Cornell addressed concerns about newly implemented U.S. tariffs, noting in a CNBC interview that consumers will likely begin to see price increases in the coming days. He emphasized that the company has diversified its supply chain in recent years to mitigate potential disruptions, but acknowledged that the broader retail landscape remains uncertain.

The company’s guidance for fiscal year 2025 does not yet account for any impact from tariffs, which could create additional pricing pressures and margin compression. Target projects full-year adjusted EPS in the range of $8.80 to $9.80, largely in line with Wall Street’s forecast of $9.31. Comparable sales growth is expected to be around flat, compared to analyst expectations of a 1.7% increase.

Stock Performance and Technical Levels

Shares of Target have struggled in recent months, falling 13% in February as concerns over weakening consumer demand and broader economic conditions weighed on the stock. The stock is currently attempting to hold key support at the $120 level. If this support breaks, the next major downside target is around $102, which marks the lows from October 2023.

Target initially saw a 3.9% pop in premarket tradin following the earnings release but reversed course to trade down 1.4% as investors digested the company’s cautious outlook and commentary on tariffs. Market participants remain wary of ongoing macroeconomic headwinds and the potential for prolonged weakness in discretionary spending categories.

Retail Industry Trends and Economic Backdrop

The broader retail landscape has been facing headwinds as U.S. consumers tighten their wallets. Target’s earnings report follows similar warnings from other major retailers. Walmart recently issued a softer-than-expected full-year sales outlook, and Home Depot projected an anemic 1% growth for 2025, reinforcing concerns about a pullback in consumer spending.

Additionally, economic data has pointed to declining consumer sentiment. The Conference Board’s latest consumer confidence index saw its largest monthly drop since August 2021, while the University of Michigan sentiment index fell to its weakest level since July. Inflation expectations have also surged, hitting a 30-year high. The Atlanta Fed has revised its Q1 2025 GDP growth estimate lower multiple times, now projecting a contraction of 2.8%.

Key Operational Metrics and Forward Outlook

While revenue growth was supported by increased digital sales and stronger-than-expected demand in categories like toys, apparel, and electronics, Target’s margins remain under pressure. The company’s gross margin fell slightly to 26.2%, reflecting higher promotional and clearance markdown rates. Store traffic increased by 2.1%, but the average transaction amount declined by 0.6%.

Looking ahead, Target expects a meaningful decline in Q1 2025 profits due to a combination of weak February sales, ongoing consumer uncertainty, and potential tariff-related costs. CFO Jim Lee cited unseasonably cold weather in February as a headwind for apparel sales but expressed optimism that seasonal demand could rebound with the arrival of warmer weather and the Easter holiday.

Target’s full-year guidance includes:

- net sales growth around 1%

- comparable sales growth flat

- operating margin expected to see a modest increase

- effective tax rate of 23-24%

- EPS range of $8.80-$9.80

Conclusion

While Target managed to beat expectations for Q4 2024, the retailer faces a challenging road ahead. Consumer spending remains fragile, and the prospect of higher prices due to tariffs adds another layer of uncertainty. The company’s cautious outlook suggests that discretionary categories may continue to struggle, particularly if economic conditions worsen.

For investors, the key levels to watch are $120 and $102 on the downside. If Target can maintain stability above $120 and demonstrate resilience in the face of macroeconomic headwinds, it could provide a foundation for future upside. However, given the ongoing concerns about tariffs, consumer sentiment, and potential margin compression, the stock’s near-term trajectory remains uncertain.