Target Corporation (TGT) delivered a mixed bag of results Thursday that had the stock down nearly 3% in premarket trading. The big-box retailer managed to beat earnings expectations but stumbled on sales and traffic, prompting management to trim its full-year outlook just as the holiday shopping season kicks into high gear.
The company posted third-quarter adjusted earnings of $1.78 per share, topping the analyst consensus of $1.72. That's the good news. The not-so-good news? Quarterly revenue came in at $25.27 billion, down 1.5% from last year and missing Wall Street's $25.34 billion estimate. Merchandise sales dropped 1.9%, reflecting ongoing weakness in discretionary spending.
AI Gets a Starring Role
In what might be the most interesting development, Target announced it's doubling down on artificial intelligence through a beefed-up partnership with OpenAI. The retailer unveiled a new Target app inside ChatGPT that will offer personalized product recommendations, multi-item cart building, and checkout options including Drive Up, Order Pickup, and shipping.
This isn't just customer-facing theater. Target says 18,000 employees at its headquarters are already using ChatGPT Enterprise to streamline workflows and improve support tools. OpenAI's models are powering internal solutions with names like Agent Assist, Store Companion, and Gift Finder, designed to speed up problem-solving and personalize the shopping experience. The company is also deploying AI across supply-chain forecasting, store operations, and digital experiences.
The Numbers Behind the Headline
Comparable sales fell 2.7% in the quarter, driven by a 3.8% decline in comparable store sales. Digital sales provided a partial offset with 2.4% growth, powered by more than 35% growth in same-day delivery through Target Circle 360. That's a bright spot worth noting—customers who engage with Target are doing so increasingly on their own terms and timelines.
Category performance was all over the map. Food & Beverage and Hardlines (which Target calls "Fun 101") showed growth, but discretionary categories remained soft. Non-merchandise sales jumped nearly 18%, with strong double-digit gains in Roundel advertising, memberships, and marketplace revenue.
Operating income hit $900 million, down 18.9% from last year. The operating margin compressed to 3.8% from 4.6% in the year-ago period. Third-quarter gross margin came in at 28.2%, just below last year's 28.3%, as higher markdowns more than offset gains from advertising growth, reduced shrinkage, and supply chain efficiencies.
On the balance sheet, long-term debt and borrowings expanded to $15.37 billion from $14.35 billion a year earlier. The company closed the quarter with $3.82 billion in cash and equivalents, up from $3.43 billion last year. Inventory stood at $14.90 billion as of November 1.
Trimming the Outlook
Target narrowed its 2025 adjusted EPS guidance to $7.00-$8.00, down from the prior range of $7.00-$9.00 and below the consensus estimate of $7.36. The GAAP EPS forecast was also cut to $7.70-$8.70 from $8.00-$10.00, compared with the $8.12 analyst consensus.
For the fourth quarter, management maintained its expectation for a low-single-digit decline in sales. That's a cautious stance heading into what's typically the most important period of the year for retailers.
"As we head into the all-important holiday season, our team is well-prepared and ready to serve our guests with the great products, value, and inspiration they expect from Target," said Michael Fiddelke, incoming Chief Executive Officer.
The company emphasized it remains focused on strengthening its merchandising authority, enhancing the shopping experience, and expanding technology use to operate with greater speed and consistency—all aimed at supporting a return to sustainable growth. Whether AI integration proves to be the differentiator Target needs, or just an expensive experiment, will become clearer in the quarters ahead.
Price Action: TGT shares were trading lower by 2.91% to $85.89 in premarket activity Thursday.