Here’s Why Target Stock Could Outperform Walmart in 2025

Key Points

• President Trump has threatened up to 25% tariffs on all imported goods and up to 60% for Chinese imports when he takes office.
• Walmart is the world’s largest importer of goods and could face a margin collapse and tit-for-tat trade war impacts if Trump follows through.
• Target has less tariff exposure despite its weak Q3 earnings report, which saw consumer spending collapse on discretionary goods with the exception of Beauty supplies.

Two of the most popular big box department stores in the retail/wholesale sector are Target Co. NYSE: TGT and Walmart Co. NYSE: WMT. On top of being the world’s largest employer, Walmart is the largest importer of products in the United States. When the U.S. dollar is strong, it’s a boon for Walmart since it gets more bang for the buck buying merchandise overseas in American dollars. However, when import tariffs are administered, as President Trump keeps threatening, Walmart could face more pressure with rising costs. Their massive retail footprint can be a double-edged sword. While Walmart is 5x larger than Target, Target’s stock may have more upside in it for 2025.

Target: Nimble With Less Exposure to Tariffs

As a smaller operator than Walmart, Target would naturally have less exposure relative to Walmart on rising tariffs. The goal of tariffs is to boost the buying of domestically made and sourced goods. This could push Target to go with more domestic suppliers. Arguably, the negative impact of imposing tariffs on imports is rising costs for consumers, leading to softer demand. Target has had a rocky 2024 with its recent earnings, which caused its stock to lose 2.1% in 2025 compared to Walmart’s stock surging 71% compared to the S&P 500 index rising 26% in 2024. Target will be looking to right the wrongs of Q3.

Target’s Q3 2024 Flop Tanks the Stock 21%

Shares of Target collapsed 21% following its Q3 earnings report as earnings missed both top and bottom-line consensus estimates on decelerating revenue. For the third quarter of 2024, Target posted EPS of $1.85, missing consensus estimates by 45 cents. Revenues rose 1% year-over-year (YoY) to $25.23 billion, falling short of the $25.87 billion consensus estimates. Comparable sales rose 0.3% YoY as guest traffic rose 2.4% YoY.

The Steep Comps Deceleration Shocked Investors

Target suffered from a higher exposure to discretionary categories than Walmart. Nearly 60% of Walmart’s sales stem from groceries, while only 25% are from general merchandise. Target generates only 25% of its revenue from Food and Beverage, leaving it more exposed to the soft consumer spending environment, which continues to be impacted by higher inflation and elevated interest rates.

Spending for bigger ticket items gets compromised for spending on staples. The drastic deceleration in comps to just 0.3% shocked investors after coming off a robust Q2 2024, which had 2% YoY comps. The one-two punch of more discounts and weaker sales eroded margins by 60 bps, causing its EPS to compress 12% YoY. Apparel and Home categories, its highest margin segment, saw comps fall 4% sequentially.

The Silver Linings

Despite the doom and gloom, there were some silver linings in the results. Foot traffic continued to grow by low single-digits YoY. Digital comps actually surged 11% YoY. Same-day delivery service and drive-up service accounted for 8% of revenues. The Beauty category comps saw a 6% YoY rise. Food and Beverage and Essentials also saw low single-digit growth.

The Bar Is Set Low Moving Forward

Target may have delivered a "kitchen sink" quarter, factoring in anticipated challenges for the holiday shopping season. By issuing downside Q4 2024 EPS guidance of $1.85 to $2.45 versus the $2.65 consensus estimate, Target has set the bar low, leaving room for upside if any improvements materialize. The full results of the holiday shopping season will be reflected in the Q4 earnings report expected in March.

Walmart: Tariff Tit-for-Tat Risk Impacts International Stores As Well

Target is situated domestically. However, Walmart is an international operator with stores located in over 18 countries. It collects around 18% of its revenues from international sales, with Mexico being its largest international market. In the event of higher tariffs being levied on imports, foreign trading partners have threatened to retaliate in a tit-for-tat manner to impose tariffs on U.S. goods, triggering a trade war. Nearly 93% of its goods sold in Walmart Mexico are made domestically. This would be the additional danger Walmart faces if Trump follows through with a universal tariff on all imports of up to 25% and up to 60% for China.

Walmart Has Economies of Scale

As the world’s largest importer, Walmart does have negotiating power due to its sheer size and scale with suppliers to help mitigate some of the impact of tariffs.

At the same time, Walmart outperformed Target in FQ3 2025 thanks to its grocery business.

Up to 80% of Walmart's suppliers are located in China, according to the Alliance for American Manufacturing. Walmart has stated that it plans to procure up to 75% of its items domestically, as it currently procures two-thirds from the United States.

Walmart Issues Mixed Guidance for Fiscal 2025

For fiscal full year 2025, Walmart forecast EPS of $2.42 to $2.47 versus $2.45 consensus estimates. Fiscal full-year 2025 revenues are expected to grow 4.8% to 5.1% YoY or $673.5 billion to $675.4 billion versus $678.16 billion consensus estimates. With a solid 70% gain in 2024, there is little room for error for Walmart stock in 2025.