Given the headwinds Target has faced this year, many advisors were not expecting to hear good news at the retailer’s latest earnings call.
Hesitation over the retail giant’s quarterly performance seems to have been well-founded. Target released its first quarter earnings on Wednesday, which revealed lower-than-expected sales and more concerns over its 2025 outlook.
First quarter sales dropped by about 2.8% to $23.85 billion, which was even lower than what Wall Street was expecting. These results are especially brutal, considering that net sales were at $24.5 billion a year prior. To make matters worse, Target has updated its 2025 guidance with expectations of a “low-single digit decline in sales.” This comes after the retailer previously expected sales to grow by about 1% this year.
Weak annual expectations come as Target battles a number of difficulties affecting its sales numbers. This includes customer boycotts, retail thefts, inflation worries, and tariff concerns, among others.
Down, But Not Out
While Target’s sales numbers were certainly weaker than expected, the retailer isn’t out of the fight just yet. In response to economic concerns, Target is now offering a wider selection of low-cost items, with many priced between $1 and $20. Additionally, the retail giant did showcase a few positive data points during its earnings call.
“While our sales fell short of our expectations, we saw several bright spots in the quarter, including healthy digital growth, led by a 36 percent increase in same-day delivery through Target Circle 360, and our strongest designer collaboration in more than a decade, kate spade for Target,” noted Brian Cornell, chair and CEO of Target Corporation. “While these highlights reinforce our confidence in the underlying health of our business, we're not satisfied with current performance and know we have opportunities to deliver faster progress on our roadmap for growth.
Target’s weak sales data and unenthusiastic 2025 outlook have led to a significant decline in its stock price. Shares for the retail giant dropped about 3% before the opening bell rang on Wednesday.
Advantages of Diversification
However, these lower stock prices could provide a great “buy the dip” opportunity for advisors betting on Target’s long-term opportunities. That being said, weak near-term growth expectations may push some to get Target exposure through a diversified strategy. Investing in a diversified fund could offer an opportunity to stay engaged with Target while mitigating some of the risk from the company’s ongoing headwinds.
There are a number of ETFs on the market that can provide access to Target stock in a diversified manner. For instance, take a closer look at the Vanguard Consumer Staples ETF (VDC). VDC offers targeted exposure to competitive companies within the U.S. consumer staples sector.
Currently, a portion of VDC’s portfolio is allocated to Target. However, about 25% of the fund’s net assets lie in Costco and Walmart. These companies have seen stronger earnings results this year, and are often viewed as companies that are in a relatively strong position to weather inflationary and tariff pressures. As such, they can operate as a stable counterweight to Target’s near-term risks.
The VanEck Retail ETF (RTH) also pairs exposure to Target stock with Costco and Walmart. However, the fund further dials in on giants in the retail industry, and holds a sizable portion of its portfolio in Amazon stock. This could make the fund a good play for investors betting that consumer sentiment will mount a comeback.
Alternatively, one could look for more broad sector exposure with the SPDR S&P Dividend ETF (SDY). SDY seeks large-caps with a focus on value and compelling dividend payouts. Income from dividends could help balance out near-term growth concerns while seeking Target’s long-term opportunities.
Looking ahead, it’s still too early to say when Target will begin to make its comeback. Regardless, advisors can take advantage of the flexible ETF wrapper to maintain access to the company in a risk-adverse manner.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our most recent market outlooks.
Read more articles by Nick Wodeshick
