Target Earnings: Weak Traffic Amid Tepid Consumer Spending Pinches Results

Key Morningstar Metrics for Target

• Fair Value Estimate: $118.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Target’s Earnings

Target’s TGT third quarter included a 2.7% comp sales decline and adjusted EPS of $1.78, down 4.00%. Ongoing softness in discretionary categories and lower store-originated sales (down 3.8%) weighed, partly offset by growth in online sales (up 2.4%).

Why it matters: The quarter reinforced our thinking that Target’s path to recovery remains investment-heavy and execution-dependent. Management plans to increase capital spending in fiscal 2026 to fund remodels and digital fulfillment, to the tune of 20% above our prior forecast.

• Target’s greater reliance on discretionary demand constrained traffic trends, down 2.2% in the quarter, its third consecutive period of declines. We expect this pressure to persist in the near term, even as rising promotions aim to lift volumes.
• While near-term headwinds endure, we still think Target’s focus on elevating its assortment and upgrading the shopping experience can support a return to low-single-digit sales growth in the long term.

The bottom line: We hold our $118 fair value estimate for no-moat Target and view shares at a 25% discount to our valuation. We surmise investors doubt Target can regain merchandising relevance, given its recent category misreads and inconsistent discretionary performance.

• Shares are down over 35% in the year to date, materially underperforming the Morningstar US Consumer Defensive Index (down 1%). Down another 3% on the results, investors signaled doubt that meaningful improvement will emerge without a prolonged period of elevated reinvestment.
• We plan to raise our fiscal 2026 capital spending as a share of sales to 4.7% from 4.0%, with no change to our fair value estimate due to the time value of money.

Coming up: Target’s incoming CEO signaled a 2026 plan with the most sweeping assortment and store changes in a decade, supported by artificial-intelligence-driven tools to sharpen merchandising and improve in-stocks. As these initiatives scale, we see a more credible path toward stabilizing market share.