Target Stock Plunge: Earnings Guidance vs. Market Reaction

Target's Holiday Forecast: Is It a Discount or a Distress Signal?

Target just dropped its full-year profit guidance, and the market’s reaction was…underwhelming, to say the least. The stock dipped, but not drastically. Analysts remain largely bearish. The question is: are we looking at a temporary blip or a canary in the retail coal mine?

The Numbers Tell a Story

Let's dissect the data. Net sales decreased by 1.5% year-over-year, landing at $25.3 billion (beating estimates of $25.04 billion, but let's not get ahead of ourselves). Comparable sales took a bigger hit, decreasing by 2.7% compared to last year's 2% rise. The Street expected a 0.3% increase. That's a significant discrepancy.

On the surface, earnings per share (EPS) look decent, decreasing just 3.9% year-over-year to $1.78, actually beating estimates of $1.73. But that’s where the good news ends. The devil, as always, is in the details.

Gross profit margin, a key indicator of profitability, was essentially flat at 28.2% compared to 28.3% a year ago. While it beat estimates of 27.51%, a flat margin in the face of declining sales suggests Target is already feeling the pressure to discount. And here's the kicker: transactions declined year-over-year. Fewer people are buying things.

This isn’t just about one bad quarter. Target has been consistently warning about its business on earnings days throughout 2025. Consumers are stretching their budgets, prioritizing necessities, and hunting for deals on discretionary items. Sales in departments like beauty and home furnishings—typically higher-margin categories—are dropping.

To combat this, Target is slashing prices on 3,000 food and household essentials. They're also planning a massive price-cutting push to lure customers back. Incoming CEO Michael Fiddelke (taking over from Brian Cornell in February 2026) is betting big on this strategy. According to “We’re Delivering Great Value”: Target Stock (NYSE:TGT) Plans Huge Sale, Prices Dip Regardless - TipRanks, Target is planning a huge sale to combat these issues.

The Market's Skepticism

But the market isn't buying it. Investors barely flinched, sending shares down only fractionally on Wednesday morning. Most analysts have "Neutral" or "Sell" ratings on the stock. Bank of America analyst Robert Ohmes, who rates Target as "Underperform," points to longer-term risks like slowing digital sales growth, a lack of scale in digital advertising, and increasing competition from Walmart and Amazon. He also notes that Target has higher tariff exposure than Walmart (a key vulnerability in the current geopolitical climate).

And this is the part of the report that I find genuinely puzzling. Target plans to ramp up capital expenditures by 25% in 2026 to improve store appearance. While I appreciate a fresh coat of paint as much as the next person, throwing money at store renovations while simultaneously cutting prices seems… counterintuitive. Are they trying to attract a higher-end customer while simultaneously competing on price with discount retailers? It's like trying to straddle two horses going in opposite directions.

Digital comparable sales did increase, growing 2.4%. But Ohmes sees this as a problem, not a solution. He argues that Target lacks the scale in digital advertising and third-party marketplace to truly compete with Amazon and Walmart. He might have a point. Target's foray into the digital advertising space is a bit like your local deli trying to take on Google Ads.

The real question is this: can Target successfully navigate this challenging environment? Can they cut prices enough to drive volume without destroying their margins? Can they attract enough new customers to offset the decline in discretionary spending?

Discounting Their Way to Disaster?

Target's strategy feels less like a carefully calculated maneuver and more like a desperate attempt to regain market share. The market’s lukewarm reaction speaks volumes. Until I see concrete evidence that these price cuts are translating into sustainable sales growth and improved profitability, I'm staying on the sidelines.