Successful retailers have these two things. Target has neither, this analyst says

Roth Capital Markets analyst Bill Kirk maintained his “Neutral” rating and $90.00 target price on Target Corporation (Target Corporation Stock Quote, Chart, News, Analysts, Financials NYSE:TGT) in an Aug. 21 report, citing better-than-expected second-quarter results but ongoing challenges with sales, margins, and earnings.

“Retail is a balance of traffic and gross margin: the best have both, but Target has neither,” Kirk said. “Prior year comparisons, particularly on profitability, get easier, but guidance (especially near the mid-point) requires a return to profitability that seems difficult. The competitive environment is tough, and tariff costs likely increase from 2Q.”

Target reported comparable sales of -1.9% in Q2, beating consensus expectations of -3%. Net sales came in at $25.2-billion (consensus: $24.9-billion), EBIT margin was 5.22% (consensus: 5.15%), and adjusted EPS was $2.05 (consensus: $2.04; Roth estimate: $2.20). Kirk noted that while absolute levels remain weak, trends showed improvement, with two-year stacked comparable sales turning positive at 0.1% and advertising revenue through Roundel accelerating 34% year-over-year.

“That said, digital growth remains largely absent (4.3% y/y from 4.7% in 1Q), and far below leading competitors, who are already larger,” he said. “With incoming CEO’s stressing that growth is his priority focus, we believe there is a willingness to increase investment, rebase earnings, and attempt to close gaps to peers.”

Target reaffirmed its fiscal 2025 guidance: net sales down in the low single digits and adjusted EPS of $7.00 to $9.00. Kirk said, “The year has started below plan, but 2Q was a step in a better direction.”

On leadership changes, Target appointed Michael Fiddelke as CEO effective February 1, 2026. Fiddelke is currently COO and formerly CFO.

“Michael has a wealth and breadth of experience to guide Target into the next phase. Most recently, he began heading the multi-year ‘Enterprise Acceleration Office, ’” Kirk said. “After a stagnant few years (FY’24 revenue in line with FY’21), a return to growth will certainly be a core focus. To do so, we believe Target has to dramatically increase spending, an earnings dilutive step they have, so far, been unwilling to take.”

Target, in its own release, expressed confidence in Fiddelke’s leadership: “He’s contributed meaningfully during times of change and played a critical role in establishing the differentiated capabilities that will continue to drive Target forward,” said Brian Cornell, current chair and CEO.

Kirk pointed out that Target spent nearly $10-billion on share repurchases in 2021 and early 2022, capital that, in hindsight, might have been better used to improve value or accelerate investments. By comparison, Walmart has spent significantly more on supply chain and IT improvements.

For Q3, Roth is forecasting comp sales of -1.5%, net sales of $25.4-billion, gross margin of 28.8%, and EPS of $1.94. For fiscal 2025, Kirk is modelling comp sales of -2.3%, net sales of $104.9-billion, gross margin of 28.1%, and EPS of $7.77.

Target said Q2 traffic and sales trends improved meaningfully versus Q1, particularly in stores, with all six core merchandising categories showing sequential improvement. Digital comparable sales rose 4.3% on strength in same-day services like Drive Up and Circle 360, while non-merchandise revenue grew 14.2%.

“Our second quarter earnings … showed encouraging signs of recovery, including improved traffic and sales trends — particularly in our stores — and disciplined cost management in a challenging retail environment,” Cornell said. “As we enter the critical back-to-school and holiday seasons, our team remains focused on consistent execution and building momentum as we look ahead to the new year.”

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