Could This Struggling Retail Giant Have a 2025 Comeback?

Many of the retailers and discount stores have had a tremendous year, with the industry as a whole outperforming the S&P 500.

However, one retail giant in specific has lagged behind it's peers' success:

Target's (TGT) stock price is down 6.4% over the past year, with shares 27% off it's 52 week high from the spring, as the company has reported continued stagnant revenue, estimate misses, and lower outlooks.

This comes as the result of multiple headwinds facing Target.

Most significant has been the continued trend of resourceful and cautious spending from consumers that limits purchases to essential items.

Unfortunately for Target, its merchandise is largely discretionary products like apparel, home goods, and electronics. This kind of inventory paired with lower discretionary spending has not boded well for company.

Another headwind, though not as impactful, has been a rise in operational costs as port strikes increased logistics expenses and healthcare/liability expenses increased administrative costs.

However, multiple signs point towards a potential comeback in 2025:

As online shopping continues to be a growing channel for consumers, Target is staying towards the front of the pack for online retailers, behind only Amazon (AMZN).

This web traffic growth for Target is also a 6 point improvement from just two months ago, while the rest of its peers remained stationary.

Another plus for Target is the cooling core inflation rate and optimistic outlook on Fed rate cuts, which promotes a more optimistic consumer and increases discretionary spending.

It seems this kind of spending is already starting to rise as the only other significant change in the web traffic chart from above, was from Best Buy (BBY), another retailer with a largely discretionary line of goods. Its web traffic growth also improved 6 percentage points over the same time period, signaling consumers could be easing up on their cautious spending.

Regardless of a change in consumer spending trends, Target is leaning into its grocery segment, as its executives have noted a more significant growth in produce, especially from organic fruits and vegetables.

Target's VP of produce pointed towards Target shoppers being younger and desiring organic products as they seek "foods that serve as medicines." Produce wholesalers also support the idea that younger generations better understand the benefits of organic produce.

Target also recently gave out some optimistic news following the holiday season as it updated its guidance and sales forecast for the fourth quarter following a successful holiday season, with record high sales from Black Friday and Cyber Monday promotions.

Growth in discretionary categories during the holidays, namely toys and apparel, also add to the encouraging momentum.

Target has still maintained some slight growth too, with the company reporting a 1% YoY revenue growth last quarter, as foot traffic grew 2.4% YoY.

This year has also found Target moving up to the 5th largest US retail ecommerce company by sales, and the 3rd most popular online store among US consumers.

Takeaway

Target's stock has had a rough past year, reflecting missed estimates and lowered outlook as revenue remains stagnant.

However, as Target leans more into consumer staples like its grocery section and consumer spending expands with lowered inflation rates, as well as increased web traffic, we think Target could be poised for a comeback.

Best of all, TGT is a dividend king, with a 53-year-running high dividend yield, providing a strong value for making a bet on a 2025 turnaround.