TARGET CORP (TGT) Q4 2025 Earnings Summary

Executive Summary

• Q4 performance: Net Sales $30.9B (-3.1% YoY on 13 vs 14 weeks) and diluted EPS $2.41, near the high end of internal guidance; comps +1.5% with 8.7% digital comp, but gross margin contracted 40 bps YoY to 26.2% on higher fulfillment, supply chain, and promo costs .
• FY25 outlook: Initial guide calls for Net Sales growth around 1% (comps around flat), a modest operating margin increase vs FY24, tax rate 23–24%, and GAAP/Adj. EPS of $8.80–$9.80; management moved away from quarterly guidance and warned of meaningful Q1 profit pressure (tariffs, cost timing, start-up costs) .
• Mix and strategy: Beauty strength and a rebound in discretionary helped comps; management emphasized investments in stores-as-hubs, Target Circle 360 same-day delivery, Roundel, and the Target Plus marketplace (>$1B GMV, path to $5B in five years) as multi-year profit tailwinds .
• Near-term watch items: Consumer softness in February, tariff uncertainty, elevated promo intensity, and Q1 profit pressure vs stronger H2 comparisons; shrink improvement and efficiency savings (> $2B last two years) remain offsets .

What Went Well and What Went Wrong

• What Went Well

  • Comps turned positive: Q4 comparable sales +1.5% with digital +8.7%; traffic drove the gains and Same-Day delivery via Target Circle 360 grew >25% .
  • Category positives: Beauty remained strong; Apparel and Hardlines trends accelerated nearly 4 pts vs Q3, and Toys/Electronics/Apparel outperformed into quarter-end .
  • Strategic flywheels: Roundel delivered nearly $2B in value in 2024 with a path to double in five years; Target Plus surpassed $1B GMV and is targeting $5B within five years; Target Circle 360 membership quadrupled since launch .

• What Went Wrong

  • Profit pressures: Gross margin rate declined 40 bps YoY to 26.2% on higher digital fulfillment/supply chain costs and elevated promo/clearance; Q4 operating margin fell to 4.7% (vs 5.8% LY) .
  • SG&A deleverage: SG&A rate rose to 19.4% (vs 18.8% LY) on higher costs including pay/benefits; operating income down 21.3% YoY to $1.47B .
  • Macro/near-term softness: February topline was soft (cold weather, lower consumer confidence), and management flagged meaningful Q1 profit pressure (tariffs, start-up costs, timing of SG&A/taxes) .

Financial Results

Note: In Q4 2024, “Net Sales” reflects all revenues under a new single-line presentation; Q2–Q3 “Sales” reflect the prior presentation .

Segment/category breakdown – Q4 YoY

Key KPIs and mix

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our team grew traffic and delivered better-than-expected sales and profitability in our biggest quarter of the year… led by strong performance in Beauty, Apparel, Entertainment, Sporting Goods and Toys.” – Brian Cornell, CEO .
• “Digital is the new front door… we’re infusing GenAI and social signals into our digital experience… guests using our same-day services tend to spend more overall with Target.” – Cara Sylvester, Chief Guest Experience Officer .
• “Target Plus now generates over $1 billion in GMV… we expect Target Plus to deliver upwards of $5 billion in annual GMV within the next 5 years.” – Cara Sylvester .
• “We expect GAAP and adjusted EPS of $8.80 to $9.80 [for FY25]… we’re moving away from quarterly guidance given elevated volatility.” – James Lee, CFO .
• “In February, topline performance was soft… cold weather affected apparel sales and declining consumer confidence impacted discretionary.” – James Lee, CFO .

Q&A Highlights

• Consistency vs growth: Management aims to reduce volatility via shorter lead times, inventory reliability, and operating consistency, while pursuing growth in higher-margin discretionary and digital ecosystems (Roundel/Target Plus) .
• Tariffs: Supply chain diversification (China mix reduced over years; Western Hemisphere sourcing) and speed gains help flexibility; focus remains on consumer value if tariffs change .
• Marketplace scale: Target Plus at ~$1B GMV targets $5B in five years; curated, on-brand assortment emphasized over “carry everything” approaches .
• Margin mechanics: Shrink recovery provided ~40 bps tailwind in 2024; further improvement expected; efficiency work is “always on” to support operating margin expansion over time .
• Near-term cadence: Expect Q1 profit pressure (tariffs, start-up costs, SG&A/tax timing) and easier H2 compares, including lapping supply chain costs in Q3 last year .

Estimates Context

• Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable at time of analysis due to data access limits, so a beat/miss vs consensus cannot be stated. We benchmark to company guidance: actual diluted EPS of $2.41 landed near the top of Target’s Q4 guidance range of $1.85–$2.45 provided in November .
• FY25 guide sets the anchor for estimate revisions: Net Sales ~+1%, comps ~flat, modest operating margin increase, EPS $8.80–$9.80; management highlighted Q1 profit pressure and annual (not quarterly) guidance practice going forward .

Key Takeaways for Investors

• Q4 execution was solid on comps/traffic with digital strength, but profitability faced mix, fulfillment, and promo pressures; watch gross margin recapture as tariffs and promo intensity evolve .
• FY25 is a “stabilize and invest” year: modest topline, modest margin expansion, and annual guidance with Q1 pressure—set expectations for stronger H2 progression as compares ease .
• Structural growth vectors—Roundel and Target Plus—are set to outgrow the core and are margin-accretive; scaling these ecosystems is an important multiple expander over time .
• Digital flywheel is working: higher digital penetration (22.8% in Q4), strong same-day and 360 membership growth, and AI-driven personalization should support traffic and basket over the medium term .
• Inventory reliability and lead-time reduction are central to reducing volatility and markdown exposure, particularly in discretionary; execution here is the key driver of margin stability .
• Beauty remains a durable share gainer; discretionary (Apparel/Hardlines) is improving QoQ—sustaining this trajectory is critical for mix and gross margin uplift .
• Catalysts: sustained Roundel/Target Plus momentum, discretionary reacceleration, shrink improvement, and visible progress on FY25 “modest” margin expansion; risks include tariffs, consumer confidence, and Q1 profit timing .