Target is set to release its latest quarterly earnings on November 19, 2025 (before the U.S. market opens). The market is focused on the changes in this quarter's revenue and adjusted EPS, as well as the trend in profit margins, particularly how management balances the pressure on comparable sales with efficiency improvements.
Market Forecast
For the third quarter, the market generally expects Target's total revenue to be approximately $25.4 billion, a year-over-year decline of about 1.93%. Adjusted EPS is anticipated to be around $1.736, which represents a decrease of approximately 24.53%. EBIT is projected to be about $1.13 billion, down approximately 22.54% year-over-year.
Last Quarter Review
In the second quarter, Target's net sales reached $25.21 billion, surpassing the market estimate of $24.93 billion. The adjusted EPS was $2.05, also exceeding expectations of $2.01. However, comparable sales decreased by 1.9% year-over-year, and customer transactions fell by 1.3%.
The company also announced that current COO Michael Fiddelke will take over as CEO in February next year.
Current Quarter Outlook
Merchandise Mix and Gross Margin Trade-Off
With a higher proportion of discretionary items like home goods, apparel, and hard lines, this structure poses a challenge in a consumer environment leaning towards essentials. The repair of comparable sales will take time. The consensus market expectation indicates a year-over-year revenue decline of about 1.93% this quarter, reflecting cautious demand.
Discounts and promotions to stimulate demand may suppress gross margins in the short term, yet last quarter's gross margin of 28.99% showed that inventory and supply chain efficiency were still effective. If promotions lead to healthier turnover and customer flow recovery, gross margin volatility might converge.
If stocking and pricing strategies ahead of the holiday season can boost transaction value and conversion rates, this quarter's gross margin performance will depend on the depth of promotions and the mix of private/exclusive brands. The market will closely watch whether management guides gross margins to stay within a stable range.
Digital Business and Non-Merchandise Income Resilience
Non-merchandise income (advertising Roundel, membership, third-party platforms) showed remarkable growth last quarter and contributed positively to margins. In the face of revenue pressure, this high margin income is crucial for maintaining overall profit quality.
Online channel growth continues, with improved fulfillment efficiency and same-day delivery capabilities helping to distribute order density and costs, alleviating the impact of digital order fulfillment costs on gross margins.
If the company intensifies traffic acquisition and on-site ad conversion this quarter, increasing the monetization rate of ad inventory, non-merchandise income might continue to outpace overall revenue, helping offset pressure from category promotions.
Operational Efficiency and Expense Management
On the cost side, supply chain and store operation efficiency are crucial to profit fluctuations. Last quarter's net margin was 3.71%. Combined with market expectations of declining EBIT and EPS this quarter, it indicates that expense pressures have not been fully relieved.
Should the company continue to optimize inventory and replenishment strategies, reducing costs associated with stockouts and clearances, along with more stable staff scheduling and automation investments, there is room for expense rate improvement.
Yet, if customer flow recovery falls short of expectations and promotion depth increases, insufficient scale effects may raise unit costs, making it difficult to significantly improve net margins. Investors should pay attention to any changes in management's outlook on full-year expense pacing.
Holiday Sales and Pricing Strategy
This quarter enters the preparation stage for the year-end shopping season, with the performance of gifts, toys, decorations, and seasonal home goods greatly impacting revenue pacing. Pricing strategies and exclusive product strength will directly affect customer flow recovery and turnover efficiency.
If the company can drive traffic through exclusive collaborations, carefully selected value packs, and differentiated displays without sacrificing too much gross margin, the revenue downturn could narrow, and gross margins might maintain relatively stable performance.
Conversely, if competitors' price advantages and grocery penetration divert customer flow, Target may be forced to extend promotion cycles and increase discount depth, keeping profit margin pressure ongoing.
Analyst Opinions
Based on media and institutional activities over the past six months, a more cautious market stance prevails. Several institutions are focused on weak comparable sales, the pressure of promotions, and tariff-related uncertainties on margins, as well as the execution pace following leadership changes. Key points include:
Some institutions emphasized after the second-quarter results that although revenue and adjusted EPS slightly exceeded expectations, the trend of declining comparable sales and transaction volumes has not been reversed. Net profit fell from about $1.19 billion in the same period last year to $935 million, indicating pressure on profits. Price promotions and merchandise mix are pressuring gross margins, and while the full-year adjusted EPS range is maintained, the guidance has not been upgraded.
Regarding the full year and the current quarter, institutions generally believe that in the backdrop of competitors increasing their grocery and low-price strategies, Target's high proportion of non-essential goods makes it more vulnerable to price-sensitive demand. This is reflected in the consensus expectation of double-digit declines in EPS and EBIT year-over-year, highlighting a conservative market stance.
There are also research opinions highlighting the resilience in advertising, membership, and platform-side income. This high-margin income has a positive impact on profit quality, but it is unlikely to fully offset the pressure from weak core retail comparable sales in the short term.