Tariffs & Consumer Uncertainty Plague Target’s Full-Year Outlook

Target warned of “meaningful” profit pressures this quarter and forecasted flat sales for the year, citing mounting consumer uncertainty and escalating trade tensions as President Trump raises tariffs on Chinese imports. The retailer’s cautious outlook underscores the big-box chain’s challenges in a turbulent economic environment. Given these uncertainties, executives at the retailer may tread more carefully when pushing LGBTQ-related merchandise for children.

Target Finance Chief Jim Lee wrote in a press release that the retailer’s February sales showed a “small decline” due to “declining consumer confidence.” 

“Looking ahead, we expect to see a moderation in this trend as apparel sales respond to warmer weather around the country, and consumers turn to Target for upcoming seasonal moments such as the Easter holiday.  We will continue to monitor these trends and will remain appropriately cautious with our expectations for the year ahead,” Lee said. 

Target warned: “In light of ongoing consumer uncertainty and a small decline in February Net Sales, combined with tariff uncertainty and the expected timing of certain costs within the fiscal year, the Company expects to see meaningful year-over-year profit pressure in its first quarter relative to the remainder of the year.” 

Target’s full-year outlook fell short of the average analyst estimate.

Goldman analysts Kate McShane, Emily Ghosh, and others summarized the bleak full-year forecast:

TGT introduced FY25 guidance with net sales growth of +1%, reflecting flat SSS (vs. GS/consensus of +2.8%/+1.9%), a modest increase in operating margin rate, and EPS of $8.80-9.80 (vs. GS/consensus at $9.80/$9.31). TGT expects to see meaningful y/y profit pressure in 1Q25 relative to the remainder of the year, citing ongoing consumer uncertainty and a small decline in February net sales, alongside tariff uncertainty and the expected timing of certain costs in FY25.

The bleak outlook was accompanied by better-than-expected results for the fourth quarter (courtesy of GS analysts): 

TGT reported 4Q24 EPS of $2.41, above GS/consensus (Refinitiv) of $2.30/$2.26. SSS came in at +1.5%, vs. consensus of +1.3%, with an increase in traffic (+2.1%) and a decline in ticket (-0.6%). By channel, the store comp decreased -0.5% while the e-commerce comp increased +8.7% (over 25% growth in same-day delivery through Target Circle 360 y/y). Of note, comp trends in apparel and hardlines accelerated by almost 4 ppts from 3Q.

The analysts noted:

We are Buy rated on TGT with a 12-month price target of $166, based on our risk-reward framework with downside/base/upside relative P/E multiples of 65%/75%/80%.

Downside risks: 1) traffic and sales trends decelerate due to weakness in consumer spending; 2) inflationary pressures related to product costs, freight/transportation, and/or wages; 3) the competitive environment forces TGT to compete more aggressively on price; 4) margins come under pressure from omni-channel, supply chain investments, and mix shift

Target shares are in correction territory year-to-date, falling nearly 50% from their peak of around $266 in November 2021. In premarket trading, shares are down 3%.

Zhihan Ma, a retail analyst at Bernstein, told clients, “We believe that Target needs to invest more in pricing and promotions to drive the top-line growth.” Target noted that it had slashed prices of 10,000 items last year. 

Competitor Walmart has been the clear winner of the value wars between the retailers. Read more about this here…

Target’s profit woes and tariff concerns only suggest that executives will back down from angering half their customer base with woke merchandise or risk those folks shifting to Walmart’s low prices.