Daniel Sparks, The Motley Fool
4 min read
In This Article:
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Target's first-quarter results fell short of expectations.
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The retailer lowered its full-year outlook for sales and adjusted earnings per share.
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Despite the stock's big pullback this year, investors should be skeptical.
Target (NYSE: TGT) has seen its stock price tumble approximately 30% year to date, underperforming the broader market by a wide margin. Its disappointing financial results this year have raised questions about the retailer's ability to return to steady, meaningful growth. The company's challenges were especially put in the spotlight on Wednesday morning, when Target reported a decline in sales. Adding to the bad news, management said it no longer expects sales to grow this year.
While the results are discouraging, some investors may be wondering if the stock's steep pullback is a buying opportunity. After all, with shares down so sharply, could all of the bad news already be priced into the stock?
The company's recent first-quarter fiscal 2025 earnings report revealed a 2.8% decline in net sales to $23.85 billion, missing Wall Street expectations. Comparable store sales dropped 3.8%, with a 5.7% decrease in physical store sales. This was partially offset by a 4.7% increase in digital sales. Adjusted earnings per share fell 35.9% to $1.30, below analysts' consensus forecast of $1.61. Although GAAP earnings per share rose to $2.27. But this figure was aided by a legal settlement.
Several factors have contributed to Target's recent struggles. The company attributed the sales decline to economic uncertainty, tariff impacts, and customer boycotts related to its stance and recent retreat on diversity, equity, and inclusion (DEI) initiatives. Given these troubles, Target downgraded its 2025 outlook, now anticipating a low-single-digit sales decline rather than the previously projected 1% increase. Further, management said it now expects adjusted earnings per share for the year to be between $7 and $9. Previously, management was targeting a range between $8.80 and $9.80.
Given consumers' declining confidence in an uncertain environment, Target is rolling out more items at lower prices to appeal to its customers' growing interest in value. Specifically, the company is launching 10,000 low-cost products to attract budget-conscious shoppers.
Regarding tariffs, Target is reducing its dependence on Chinese imports. Management said that 30% of its products come from China today. But it expects that figure to come down 25% by the end of next year.
