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Investing.com -- Fitch Ratings has affirmed Target Corporation (NYSE:TGT)’s Long-Term Issuer Default Rating (IDR) at ’A’ and Short-Term IDR at ’F1’, while maintaining a Negative outlook.
The credit rating agency cited Target’s strong U.S. market position, well-recognized brand, and good cash flow generation as key factors supporting the current rating. However, the Negative outlook reflects recent execution missteps and increased retail industry volatility that have pressured the company’s market share and profitability.
Fitch projects Target’s EBITDA will decline by over 10% to below $8 billion in 2025, pushing EBITDAR leverage to approximately 2.5x. The agency noted that stronger sales and leverage improvement to 2.0x could support a revision to a Stable outlook.
Target’s operating results have been volatile due to external challenges and execution issues. Fitch forecasts a 15% EBITDA decline in 2025 to $7.4 billion on about $103 billion in revenue, driven by pressure on discretionary categories like apparel and home, along with higher costs from evolving tariffs.
The retailer has established a new enterprise acceleration team to improve operational agility and aims to regain market share through better merchandising and omnichannel enhancements. To support an outlook revision to Stable, Target would need to demonstrate low single-digit growth and restore EBITDA toward $9 billion.
Despite current challenges, Fitch acknowledged Target’s earlier operational success, which reflected strong market positioning and effective long-term execution. The company averaged 4% revenue growth from 2017 to 2019, before accelerating to 20% in 2020 and 13% in 2021.
Target’s omnichannel initiatives have increased digitally originated revenue to about 20% in 2024 from 9% in 2019. The company plans to add over 300 new stores over the next decade to its current base of nearly 2,000.
Annual free cash flow is projected to be near breakeven in 2025 but rebound to over $500 million beginning in 2026. Target recently issued $1 billion in unsecured notes to pre-fund its $1 billion due April 2026.
A downgrade to ’A-’ would result from weak operating results, including comparable store sales consistently under 2%, or EBITDA sustained below mid-$8 billion, which could yield EBITDAR leverage sustained above 2.0x.
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