Why Target Stock Dropped After Earnings Tuesday

Good earnings news wasn't great news for Target (NYSE: TGT) stock this morning, after the big-box retailer announced a sizable earnings beat Tuesday, then saw its stock sell off.

Analysts forecast Target would earn $2.25 per share on fiscal fourth-quarter sales of $30.4 billion (Target's fiscal year ended Feb. 1, 2025). In fact, Target earned $2.41 per share, and sales exceeded $30.9 billion. Regardless, Target shares were down 5.2% through 10 a.m. ET.

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Target Q4 earnings

Target noted that its same-store sales grew 1.5% year over year, and that quarterly earnings of $2.41 were "near the high end" of company guidance. But Q4 2023 contained an additional week of data when compared to Q4 2024. As a result, total sales and earnings declined -- because Target had less time to make sales and earn profit.

Year over year, therefore, quarterly sales declined 3% and net profit declined 19%. For the full year, which also contained one week less in fiscal 2024 than in fiscal 2023, net sales fell 1% to $106.6 billion, and net profit was also down 1% at $8.86 per share.

Investors who are selling off Target stock today may be responding to these shrinking numbers in particular.

Is Target stock a sell?

The good news is that the calendar won't be a drag on sales or earnings in 2025. Turning to guidance, Target forecasts 1% sales growth in 2025, with a "modest" increase in operating profits helping to push per-share profits up to somewhere between $8.80 and $9.80.

Taken at the midpoint, this implies that earnings might grow as much as 5% this year, to about $9.30 per share. That's significantly ahead of expectations, with Wall Street only expecting Target to earn about $8.70 per share.

Assuming all goes as planned then, Target stock currently sells for an undemanding 12.4 times current-year earnings. With a 5% earnings growth rate and a 3.7% dividend yield, it doesn't quite make the stock cheap enough that I'd call it an obvious buy -- but I don't see any compelling reason to sell Target, either.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.