To The Moon

$Target(TGT)$ $Wal-Mart(WMT)$ $Dollar Tree(DLTR)$ 

🎯 Executive Summary

I’m convinced Target’s Q3 print exposes a retailer caught in structural cost pressure while a discretionary recession deepens. The stock slipped nearly 3% pre-market after adjusted EPS landed at $1.78 vs $1.71 expected while revenue missed at $25.27B vs $25.29B consensus. Management cut full-year guidance to $7 to $8 EPS from $7 to $9 and guided Q4 sales to decline low single digits. Options flow surged to 6x normal volume with aggressive positioning in Nov 90C and Jan 90P. Same-day services via Circle 360 jumped more than 35% and Roundel ads climbed nearly 18%, yet gross margin eased to 28.2%, store traffic fell 3.8%, and SG&A deleveraged. I’m watching the restructuring plan eliminating 1,800 roles for $180M annual savings and 2026 CapEx near $5B, yet the macro landscape remains harsh. This is not a one-off miss. It is part of a deeper rerating cycle visible across retail peers such as $WMT and $COST.

💰 Financial Performance Breakdown

Revenue printed $25.27B, down 1.5% YoY. Comparable sales fell 2.7% vs expectations of 2.06%. Store comps declined 3.8% while digital comps gained 2.4% driven by fulfilment strength. GAAP EPS was $1.51 vs $1.85 YoY. Adjusted EPS $1.78 vs $1.85 YoY yet beat consensus. Gross margin 28.2% vs 28.3% last year. Operating margin 3.8% vs 4.6% YoY. Operating income down 18.9%. SG&A rate 21.9% vs 21.3%. ROIC 13.4% vs 15.9%. EBITDA $1.75B vs $1.89B expected. Net income $689M vs nearly $800M expected. Inventory improved 1.8% YoY to $14.9B, reducing markdown risk. Category volatility was extreme: August flat, September down ~4% from warm weather hits, October flat supported by Circle Week. Non-merchandise sales grew 17.7% and Roundel ads rose nearly 18%. Consensus FY25 adjusted EPS now ~ $7.36.

🛠️ Strategic Headwinds and Execution Risk

Management expects no Q4 recovery, guiding low single-digit sales declines and $7 to $8 EPS for FY25. Margin risk persists due to promotions, warm-weather apparel pressure, FX drag, and fixed cost inefficiency. Shrink improvement should add 80 to 90 bps to gross margin for the year. Q3 showed limited cushioning from cost discipline. Pilots expanding to 35 markets aim to separate store fulfilment from guest experience workloads. 2026 CapEx near $5B will reshape store layouts and accelerate AI investment. 🇨🇳 China sourcing at ~30% may need further adjustment depending on 2026 tariff risk. $150M in buybacks highlight preserved capital discipline but narrow flexibility if comps remain weak. Execution risk remains significant while discretionary categories stay negative.

🧠 Analyst and Institutional Sentiment

Analysts trimmed targets post-guide cut. Goldman Sachs keeps Sell at $85 PT. JPMorgan holds Neutral at $95 PT. Evercore ISI cut to In-Line at $100 PT. The broader PT range is $85 to $105 with average implied upside of only 5% to 7%. Institutions remain cautious with no noticeable accumulation. ETF exposure via $XRT and $VYM adds passive support. Options flow skyrocketed 6x normal levels, with call interest mixed with heavy Jan 90P hedging. Sentiment splits between digital ecosystem optimism and discretionary pessimism.

📉📈 Technical Setup

Charts show a decisive downtrend. Price broke supports at $95, $90, and $88 then flipped them into resistance. RSI prints around 33.63 on daily and sits in the 30s across timeframes reflecting a neutral-to-oversold state without bullish divergence. MACD remains negative between -1.46 and -0.76 with no bullish crossover. Price sits under the 21EMA ($92), 50DMA ($95), and 200DMA (~$105). A death cross persists. Bollinger Bands show price near the lower band. Keltner Channels contract, showing no energy for expansion. A tightening descending wedge reinforces the bearish structure. Failed backtests at $90 continue. Downside levels aim at $80 base and $75 stretch if $85 fails. A long setup only forms if price reclaims $90 with volume 1.5x to 2x and RSI lifts above 50. Compared with $COIN’s macro bullish uptrend, $TGT remains structurally weak.

🌍 Macro and Peer Context

Core CPI at 3.2% compresses household budgets. Fed policy near 4.5% sustains restrictive conditions. Energy volatility and geopolitical risk deepen consumer caution. $WMT outperforms with strong comps and forward P/E ~36.7. $COST drives 12% revenue CAGR through loyalty and value. $HD and $LOW soften from housing weakness yet still outrank $TGT on ROIC performance. Trade-down trends benefit $DG and $DLTR. ETF flows rotate to defensives such as $SCHD and $VYM while discretionary retail lags. Global freight uncertainty and potential 2026 tariff changes increase cost risk. Retail sector comps near -2% magnify Target’s exposure to seasonal demand shifts and promotional pressure.

Target is deploying OpenAI-driven Conversational Curation and Synthetic Audience modelling to accelerate personalisation and test product reactions digitally, yet these AI enhancements have not offset the discretionary sales decline.

📊 Valuation and Capital Health

At ~$88, $TGT trades at ~11.7x forward EPS using the $7.50 midpoint. EV/EBITDA sits ~6.7x vs historical ~10.7x and peer averages 9x to 12x. Price to FCF ~12.5x with FCF yield near 8%. Cash ~ $4.2B vs debt ~$16.5B with net debt EBITDA ~2.8x. Dividend yield ~3.2% remains second priority behind investment. CapEx will rise to nearly $5B in 2026, increasing leverage risk if comps fail to recover. Circle 360 expansion and member growth toward 15M by Q4 2026 remain key to long-term digital scale.

Dividend yield has surged to 5.24%, near multi-year highs. The long-term yield trend is up 75.36% since 2017 with a 6.3% CAGR, reflecting valuation compression as the share price weakens rather than accelerated dividend growth.

⚖️ Verdict and Trade Plan

I am Bearish. Sequential comp deterioration from -1.9% in Q2 to -2.7% in Q3 signals an intensifying discretionary downturn. Digital resilience cannot offset traffic declines and margin pressure. Avoid knife catching under $88. A long setup requires reclaiming $90, RSI above 50, MACD crossover, and high-volume confirmation. Stop at $85. Base target $95 with stretch $105 if reversal becomes structurally valid. Downside risk persists if Q4 comps remain near -2% or margins sit near 3.8%.

🏁 Conclusion

I’m clear that $TGT is not showing a structural bottom. Charts, comps, and slashed guidance point to continued instability. This is not a dip to predict. It is a trend to respect. Execution must beat narrative before sentiment can shift. The numbers tell the story, and they favour caution.

📌 Key Takeaways

• Adjusted EPS $1.78 beat, GAAP EPS $1.51, revenue $25.27B.

• Comparable sales -2.7%, store comps -3.8%, digital +2.4%.

• Operating margin 3.8%, SG&A 21.9%, inventory -1.8% YoY.

• FY guide cut to $7 to $8 EPS, Q4 sales low single-digit decline.

• Circle 360 +35%+, Roundel +18%, shrink recovery adds 80 to 90 bps.

• RSI ~33.63, MACD negative, support $85, resistance $90, wedge pressure intact.

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