Target Earnings: Modest Sales Decline, New CEO Named Amid Strategy Reset
- Hardik Shah
- Aug 20
- 3 min read
TLDR
Revenue Strength: Sales fell 0.9% YoY to $25.2B, but trends improved sequentially with digital sales +4.3%.
Margin Trends: Gross margin slipped to 29.0% on tariffs and markdowns; EPS down 20% to $2.05.
Forward Outlook: Full-year EPS guidance maintained; succession plan positions Target for strategic reset.
Business Overview
Target Corporation (NYSE: TGT) operates nearly 2,000 stores across all 50 states and a growing e-commerce business. Its $31B owned-brand portfolio spans categories from apparel and home to food and beauty. The company leverages its stores as fulfillment hubs, with over 80% of sales store-originated, but digital continues to expand—now nearly 19% of sales. Partnerships with brands like Apple, Levi’s, and Starbucks, combined with loyalty platform Target Circle, underpin its omni-channel strategy.
Target Earnings Q2'25:
Revenue: Q2 net sales were $25.2B, down 0.9% YoY. Comparable sales declined 1.9%, with stores -3.2% and digital +4.3%. Non-merchandise revenue (Roundel, marketplace, memberships) rose 14.2%.
Margins: Gross margin declined to 29.0% (vs. 30.0% LY) due to tariffs, markdowns, and category mix, partly offset by lower shrink. Operating margin compressed to 5.2% (vs. 6.4%).
Profitability: GAAP and adjusted EPS were $2.05, down 20% from $2.57. Net income was $935M, down 21.5%.
Drivers: Inventory adjustments and tariff-related costs were the largest headwinds, though efficiency gains and strong cost discipline provided offsets.
“We need to do better, and our entire team is focused on consistent execution, building further momentum, and getting back to profitable long-term growth.” - Brian Cornell (Outgoing CEO & Chair)
Forward Guidance
Management Outlook: Full-year GAAP EPS is guided at $8.00–$10.00, with adjusted EPS at $7.00–$9.00. Sales are expected to decline low-single digits.
Risks & Opportunities: Ongoing tariff volatility, inflation, and consumer trade-down behavior pose risks. Offsets include digital momentum, shrink reduction, and stronger merchandising authority.
Operational Performance
Category Trends: All six merchandising categories improved sequentially. Hardlines grew +5% on trading cards (+70% YTD) and Nintendo Switch 2, putting trading cards on track for $1B in annual sales.
Supply Chain & Costs: Inventory ended Q2 up 2% YoY, reflecting deliberate investments in food, beverage, and essentials. Shrink improvement expected to add 80 bps to operating margin this year.
Tariffs: Teams mitigated most tariff costs through sourcing shifts and assortment changes, though tariffs still pressured gross margin.
“Trading card sales are up nearly 70% year to date, driving hundreds of millions of dollars of incremental sales and putting the category on track to deliver more than $1 billion this year.” - Rick Gomez (Chief Commercial Officer)
Market Insights
Retail Dynamics: Consumers remain highly value-conscious amid inflation and tariff uncertainty. Competitors are leaning into private label and promotional pricing.
Category Shifts: Beauty saw mixed results—core categories like skincare and haircare posted low-single-digit growth, but overall beauty declined slightly. Food & beverage gained modestly on innovation in beverages and seasonal items.
Consumer Behavior & Sentiment
Target is observing:
Value-Seeking Shoppers: Guests prioritize affordability, but also style and trend.
Discretionary Improvement: Apparel and home rebounded on newness (women’s denim comps +28%).
Seasonal Strength: Back-to-school and back-to-college assortments are off to strong starts, boosted by low-priced essentials and exclusive collections like Champion for Target.
Strategic Initiatives
Leadership Transition: Michael Fiddelke will become CEO in 2026, succeeding Brian Cornell. He emphasized three priorities: reclaiming merchandising authority, elevating guest experience, and accelerating technology use.
Technology & AI: Over 10,000 AI licenses deployed to improve forecasting and productivity. Goal: faster decision-making and reduced manual processes.
Merchandising Reset: Hardlines transformed under “Fun 101” strategy; similar revamps planned for home and food categories.
Partnerships: Ulta Beauty partnership will end in 2026, with plans to repurpose space for evolving consumer needs.
“We must reestablish our merchandising authority, elevate the guest experience consistently, and more fully use technology to improve our speed, guest experience, and efficiency.” - Michael Fiddelke (Incoming CEO)
Capital Allocation
Dividends: Paid $509M in Q2, up 1.8% YoY. Board approved a 2% increase for Q3 dividend.
Buybacks: No repurchases in Q2, but $8.4B remains authorized. Buybacks may resume cautiously in 2H25.
Capex: ~$1.9B YTD, on track for $4B FY spend across new stores, remodels, supply chain, and tech investments.
The Bottom Line
Target’s Q2 results show sequential improvement but ongoing headwinds from tariffs and discretionary weakness. Digital growth, merchandising initiatives, and inventory discipline provide green shoots. The CEO transition to Michael Fiddelke marks a strategic reset, with a focus on style, technology, and consistency.
For investors, key watchpoints include tariff developments, consumer elasticity during back-to-school and holiday seasons, and execution on merchandising and tech investments. With EPS guidance intact, Target is signaling confidence—but delivery in 2H25 will be critical to regaining retail momentum.
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