Target (TGT -0.79%) has seen its stock price tumble approximately 30% year to date, underperforming the broader market by a wide margin. Its disappointing financial results this year have raised questions about the retailer's ability to return to steady, meaningful growth. The company's challenges were especially put in the spotlight on Wednesday morning, when Target reported a decline in sales. Adding to the bad news, management said it no longer expects sales to grow this year.
While the results are discouraging, some investors may be wondering if the stock's steep pullback is a buying opportunity. After all, with shares down so sharply, could all of the bad news already be priced into the stock?
Image source: Getty Images.
Target's Q1 results: What you need to know
The company's recent first-quarter fiscal 2025 earnings report revealed a 2.8% decline in net sales to $23.85 billion, missing Wall Street expectations. Comparable store sales dropped 3.8%, with a 5.7% decrease in physical store sales. This was partially offset by a 4.7% increase in digital sales. Adjusted earnings per share fell 35.9% to $1.30, below analysts' consensus forecast of $1.61. Although GAAP earnings per share rose to $2.27. But this figure was aided by a legal settlement.
Several factors have contributed to Target's recent struggles. The company attributed the sales decline to economic uncertainty, tariff impacts, and customer boycotts related to its stance and recent retreat on diversity, equity, and inclusion (DEI) initiatives. Given these troubles, Target downgraded its 2025 outlook, now anticipating a low-single-digit sales decline rather than the previously projected 1% increase. Further, management said it now expects adjusted earnings per share for the year to be between $7 and $9. Previously, management was targeting a range between $8.80 and $9.80.
Responding to uncertainty
Given consumers' declining confidence in an uncertain environment, Target is rolling out more items at lower prices to appeal to its customers' growing interest in value. Specifically, the company is launching 10,000 low-cost products to attract budget-conscious shoppers.
Regarding tariffs, Target is reducing its dependence on Chinese imports. Management said that 30% of its products come from China today. But it expects that figure to come down 25% by the end of next year.
"We are expanding into new countries, Asia as well as the Western Hemisphere," said Target executive vice president Rick Gomez during the company's first-quarter earnings call, "but I think it's important to note that we're also exploring opportunities here in the U.S."
What should investors do?
Perhaps the biggest thing the company has going for it is its dividend yield of about 4.6%. But it's worth remembering that dividends could always be paused, reduced, or cut in the future -- especially if financial pressures persist.
Another potential reason investors may be tempted to consider the stock is its cheap valuation. Shares trade at less than 12 times adjusted earnings per share. Some investors may believe, therefore, that the stock's recent pullback is an overreaction. But even this reason to consider buying shares may not be adequate, since things could get worse before they get better.
Investors may want to adopt a cautious, wait-and-see approach with Target stock. The company's efforts to revitalize its business and address the uncertain environment in which it is operating could be less effective than planned or take longer than expected. Sure, this approach could prove to be too cautious; it's always possible that shares are truly nearing a bottom, providing a good buying opportunity. But visibility is low and risks are high. I'd argue, therefore, that there are probably better investments to consider.
