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Fitch Ratings has reaffirmed Target Corporation’s Long-Term Issuer Default Rating at ‘A’ and Short-Term IDR at ‘F1’. However, the outlook remains Negative, reflecting continued uncertainty in the retailer’s performance and operating environment. While Target maintains a strong market position in the U.S. and benefits from its widely recognised brand and consistent cash flow, Fitch highlighted recent execution missteps and heightened volatility across the retail sector as key risks.
Fitch expects Target’s EBITDA to decline by more than 10% in 2025, bringing it below $8 billion. This drop, combined with increased pressure in discretionary spending categories like apparel and home, could push EBITDAR leverage to around 2.5x. In contrast, a return to leverage closer to 2.0x and stronger sales trends could support an improvement in outlook from Negative to Stable.
The company is navigating a challenging retail climate, marked by weakened consumer demand and rising input costs, including those driven by changing tariffs. In response, Target has launched a new enterprise acceleration team aimed at improving its agility and execution across operations. Key strategies also include refreshed merchandising and investment in omnichannel capabilities to win back lost market share.
Fitch’s outlook for 2025 reflects a 15% drop in EBITDA, bringing it to about $7.4 billion, with annual revenue forecasted at approximately $103 billion. If Target can return to low single-digit revenue growth and restore EBITDA closer to $9 billion, Fitch could reconsider its Negative stance.
Target’s longer-term fundamentals remain solid, according to Fitch. Between 2017 and 2019, the company saw a 4% revenue growth rate, which accelerated to 20% in 2020 and 13% in 2021 during the pandemic boom. Even though current challenges persist, those past results demonstrate Target’s capacity for effective execution when conditions are favourable.
The company’s investment in digital and omnichannel infrastructure has also paid off, with digitally originated revenue growing from 9% in 2019 to around 20% in 2024. Target has plans to expand its store footprint significantly, aiming to add more than 300 locations to its existing network of nearly 2,000 stores over the next ten years.
While free cash flow in 2025 is projected to be near breakeven, Fitch expects it to recover to over $500 million beginning in 2026. Target recently issued $1 billion in unsecured notes to manage its upcoming debt maturity in April 2026.
If Target’s performance continues to falter, particularly with comparable sales consistently below 2% or EBITDA failing to hold above the mid-$8 billion range, Fitch may downgrade the rating to ‘A-’. For now, the company’s credit quality remains investment-grade, but the pressure is on to reverse declining trends and reestablish financial stability.