There was a time when Target (NYSE:TGT) was cool, and folks would ooze with envy when a friend was heading out to shop at Tar-zhay. However, there doesn't seem to be a lot of shade under the "cheap chic" umbrella these days. Target's sales are slipping, and profits are falling short. The stock is trading well below where it peaked last summer.

Fickle shoppers can be so cruel when they turn on an icon.

Target's latest quarter was another dud. Sales inched nearly 2% higher to $17.4 billion, but the growth was entirely the handiwork of opening new stores in the U.S. and Canada. Same-store sales were flat in the U.S., where Target generates nearly 98% of its business. And same-store sales were down sharply in Canada. 

You can never judge a retailer just by a top-line number. Anything from clearance sales to heavy discounting can keep registers busy while decimating the bottom line. That's pretty much what we've seen at Target since the holiday shopping data breach that exposed 40 million credit and debit card accounts, ultimately making as many as 70 million of its customers vulnerable. We've seen margins slip, resulting in a 21% plunge in adjusted earnings per share over the past year.

Blue Christmas
Target has now fallen short of Wall Street profit targets in three of the past four quarters.

It isn't easy being a discounter these days. Market leader Wal-Mart (NYSE:WMT) is expected to post lower earnings this year. Sears Holdings(NASDAQOTH:SHLDQ) Kmart is in a big funk, posting another year of negative comparable-store sales last year. 

Target seemed to be above the fray. It was the cool discounter. It's the one that tastemakers playfully call Tar-zhay. No one would be caught dead bragging to friends about a shopping trip out to Wal-Mart and Kmart, but Target used to tweet-worthy. It used to be fashionably thrift. A lot of that changed in December.

The data breach that exposed tens of millions of accounts to hackers was a major blow to Target. It went public with the news just as the mad pre-holiday scramble was peaking. When shoppers went elsewhere Target got promotionally aggressive, culminating in a surprising 10% discount on nearly everything in its store during the final weekend of the critical holiday shopping season. It's a safe bet that a lot of shoppers hit the registers with cash instead of risking a swipe of plastic. 

Still, that wasn't enough. Target eventually checked in with a rough quarter in which earnings slipped 21% and comparable-store sales slid 2.5%. Bah humbug, Target.

It's a moving Target
Target's in a bad spot. It's still struggling to win back shoppers, judging by flat comps in its latest quarter. It's also having to give away the store to get those shoppers back.

Shrinking gross margins may be good for shoppers. Target isn't able to mark up its merchandise the way it did in the past, and that stretches the value of a customer's dollar. However, it places Target in a vicious cycle in which it can't go back to its heartier markups.

One would think that the market would forgive Target. It offered up not just one sacrificial lamb, but two. Just two months after its CIO stepped down, Target's president and CEO followed suit.

Unfortunately, forgiving Target and trusting it again are two entirely different things. The data breach was embarrassing. It ultimately resulted in a Department of Justice investigation. Target made negative headlines at the worst possible time. Folks who had gone shopping at the chain during the holiday push were called unlucky, a far cry from the envy that a trip to Target would often produce. 

Target's trying to keep shareholders happy. It's returning money to its stakeholders through stock buybacks and a healthy dividend increase, which it enacted earlier this year. However, after watching Kmart struggle through various years of negative store-level growth, it's easy to be skeptical about Target's ability to return as the cheap-chic darling that it used to be.

It's going to be hard to get excited about Target until sales and profitability bounce back. The upcoming holiday shopping season will be huge. Target can't afford to mess it up this time.

Rick Munarriz and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.