MW Target's weak results were the quarter's 'least-well-kept secret,' but immediate improvement seems elusive, analysts say

By Bill Peters

'The question now for investors is, what is the true earnings power of this company?' one analyst says

Target Corp.'s downbeat quarterly results and forecast weren't exactly a surprise to Wall Street. But as the big-box retailer deals with tariffs and consumer apprehension, more analysts on Wednesday wondered about the future of the company's profitability overall.

"This quarter's weakness was the least-well-kept secret, between tariffs, weather, a boycott and transitional activities," Sarah Henry, managing director and portfolio manager at Logan Capital Management, said via email.

She added later: "The question now for investors is, what is the true earnings power of this company?"

Shares of Target fell 4.3% on Wednesday. Over the past 12 months, the stock has fallen 34.5%.

Still, Henry said there were some positive takeaways from the results. She noted that executives cited an uptick in demand for things like toys and pool accessories as the weather warmed up.

Target's rewards program, online-ordering infrastructure, third-party sales and digital ad revenue also represented ways to boost profits, she said. But Henry said those efforts, which echo those undertaken by Walmart Inc., could take time to pay off.

Bill Kirk, an analyst at Roth Capital, said more difficulty was likely ahead for Target.

"With prior year comparison more difficult and a greater impact from tariffs, we don't envision imminent improvement," he said in a research note.

Target's (TGT) first-quarter results earlier in the day came in worse than expected, and the chain cut its full-year profit forecast. Henry said that the company, in the past, had a strong private-label business, with similarly strong margins, and a brand consumers trusted.

But the past few years of cost-of-living increases, which have forced many shoppers to focus on the basics, have shifted that narrative.

Unlike Walmart $(WMT)$, which gets more of its sales from groceries, Target sells more of the things - like clothes and electronics - that have been a lower priority for consumers. Analysts have said that other issues, like a boycott over Target's retreat from diversity commitments, have also threatened sales.

David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors, said over email on Wednesday that as Target gives up market share, "the company will not be able to participate much in the upside when discretionary demand rebounds." Earlier this month, other analysts also said that when discretionary demand rebounds, competition is likelier to occur online.

Adding to those difficulties have been tariffs and the risk of angering President Donald Trump, who over the weekend criticized Walmart (WMT) after the retailer said it would have to raise prices because its margins were too narrow to absorb the impact of the new levies.

Elsewhere, Western-themed retailer Boot Barn Holdings Inc. $(BOOT.UK)$ was also cautious on the impact of tariffs. However, Home Depot Inc. $(HD)$ on Tuesday said it didn't see "see broad-based price increases for our customers at all" up ahead.

Trump has said tariffs, which function as a tax on imports, are necessary to revive U.S. manufacturing or otherwise secure better trade deals for the country, although the harshest of those levies are on pause for now. Further price increases on consumers could also reignite debate over how much corporate America might take advantage of yet another global economic disruption to charge more.

Target Chief Executive Brian Cornell, during the retailer's earnings call on Wednesday, said price increases were the "very last resort" for the company and that the difficulty in dealing with tariffs has been "incredibly high."

During the call, Chief Commercial Officer Rick Gomez said that half of what Target sells is sourced from the United States, and that the company over the past several years has taken steps to reduce its reliance on China.

He also said that out of the 35 product categories in which Target competes, it gained market share - or at least didn't lose it - in 15. Categories where Target picked up a bigger share of the market included clothing, swimwear and seasonal merchandise, he said.

Jefferies analyst Corey Tarlowe, in a research note, called out strength in Target's digital sales and other efforts to blunt the tariff impact - including negotiations with suppliers - as positives. But he said weaker traffic and markdowns weighed on sales.

But Tarlowe said he was still sticking with a buy rating on Target's stock.

"Despite the uncertainty ahead, we believe that [Target] is well positioned for market share gains and margin recovery when broader discretionary spending improves," he said.

"With a growing advertising business, robust loyalty program, valuation attractive relative to peers, and recent initiatives, we maintain our Buy rating."

-Bill Peters

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May 21, 2025 15:45 ET (19:45 GMT)

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