Inside today’s Daily Journal…

Target (TGT) offers a profound lesson, happening in real time, for every business owner or investor.

When your unique selling proposition (“USP”) no longer exists, then you must pivot. All too often, boards (and private business owners) only see the risks to changing course. They ignore the certainty of failure without change.

Great example: Kodak versus Fujifilm.

Eastman Kodak (KODK) tried to protect its core chemical film business because it was a cash cow. Its board didn’t seem to notice that technology (digital cameras) meant there was zero future in consumer chemical film. Its big innovation to compete with digital? Film cameras in a disposable cardboard box, with plastic lenses and zero quality. Kodak when bankrupt.

Fujifilm’s (FJI) board stopped investing in legacy film cameras immediately. Instead, it invested in building new applications for its core chemical expertise, including an array of high-tech semiconductor manufacturing materials and medical systems, like endoscopes and diagnostics. To deal with consumer digital competition, it offered what digital cameras don’t: a printed photo, instantly. Fujifilm’s Instax camera line (introduced in 1998) has become the dominant leader in the instant photography market, with over 100 million units sold.

Target built its business around a clear market niche: it offered higher-quality merchandise and a much higher-quality shopping experience to middle-income women. And it did such a good job with the retail experience that it became a weekend destination for millions of American families. It wasn’t like shopping with the “people of Walmart” (see the Instagram page of the same name), and it wasn’t a huge warehouse with merchandise piled to the rafters, like Costco.

The problem is that Target’s USP no longer works, for a variety of reasons, including poor execution. But even perfect execution can’t beat DoorDash, Instacart, and Amazon. The way housewives shop has changed forever with the advent of cheap, same-day delivery. These services have siphoned-off Target’s best customers, marking Target as the next victim in the death of retail.

The numbers speak for themselves.

Total sales fell 1.7% to $104.8 billion in 2025 from the year before. Target has now seen negative or flat growth in 11 of the last 13 quarters. This isn’t a “rough patch” – it’s a USP that’s obsolete and a business model that’s broken.

In an inflationary environment, flat nominal sales represent a massive decline. To re-ignite growth, Target has followed the traditional retail playbook, lowering prices to drive sales. That means it must compete directly on price with Walmart (WMT) and Costco Wholesale (COST) – fights it can’t win. The strategy is killing the company’s margins and profits. Last year’s operating income was down 43% from its peak in 2021.

And the numbers are actually far worse than these declines suggest. To cover massive declines in retail profits, management is increasingly relying on Roundel (selling advertising so other businesses can target its customers) and Target Circle 360 (memberships). This high-margin advertising and membership revenue is being used to plug the hole left by the failing retail business. While Roundel and Target Circle are great businesses, they only work if people are actually shopping at Target. If the underlying retail traffic continues to decline, the value of these product lines will fall to zero.

Thus, the real problem isn’t prices or merchandising – it’s traffic.

Target’s customers do not want to go to the store anymore, period. While Walmart U.S. posted a 4.5% increase in comp sales and 2.3% increase in foot traffic in Q4, Target’s traffic fell 2.0%. Target saw declining same store sales each quarter in 2025, with a 3.9% decline in physical store comps in Q4. The most damning data point? Weekend traffic at Target crumbled 6.1% in 2025.

The famed “Tarzay run” – when housewives would spend hours shopping at Target’s stores every Saturday – is over. To see why, just go visit a store. They’re staffed with high school dropouts. The parking lots look like a film set for The Walking Dead. Half the merchandise is locked up. And there’s no inventory for the things you’d actually want to buy.

When traffic falls 2% to 3% consistently, year after year, the business loses operating leverage. Target has high fixed costs for its nearly 2,000 stores, including a labor force of 400,000-plus. It requires a high volume of transactions just to break even on an incremental basis. Without that volume, every store becomes a liability. A disproportionate loss of weekend traffic (the most profitable shopping days) is the beginning of a death spiral.

Target should cut the dividend to conserve capital. It should immediately close at least half of its stores – or perhaps all of them, over time. It must pivot and find new ways to extract value from its huge real estate portfolio.

Just as Berkshire Hathaway moved away from textiles and into insurance by slowly converting the asset base, Target must find a new core business.

That won’t be easy.

Just see the total return on the Sears’ real estate portfolio since it was spun off as a REIT, Seritage Growth Properties (SRG). Its total return as a publicly traded REIT is… almost a total loss, down more than 80%. But… despite the risks of change, they’re better odds than the certainty of failure on its current course.

Meanwhile, Target’s board is acting like Kodak, not Fujifilm. It’s continuing to invest in opening more stores (!), even after gutting its capex budget because of plummeting operating income.

With operating income down 8.1% in 2025, the dividend payout ($2.1 billion) is now dangerously close to consuming all free cash flow. If these declines continue in 2026 (management, of course, says they won’t) then Target will have to either gut the capex budget or cut the dividend.

What will they do? Oh, that’s an easy prediction to make. Target’s board will defend the dividend at all costs. And in doing so, it is going to doom shareholders and the business. I believe Target will go out of business completely by 2030 or so.

Lots of inventors – and probably some of my dear, paid-up subscribers – will demand that the dividend continue to be paid. That’s dumb. It isn’t working, as shown in the below:

Companies paying big dividends while operating results crater are committing a kind of fraud on investors. Dividends should only be paid out of sustainable earnings, when all necessary capital expenditures have been made.

Getting a big dividend from a failing business is a good way to lose a lot of money, as Target’s shareholders are about to discover.

Tell me what you think: [email protected]

Good investing,

Porter Stansberry
Stevenson, Maryland

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1. Data center building boom. Spending on data-center construction surged over $45 billion annually, overtaking the $43 billion directed to office construction – which has fallen 35% since 2020. Hyperscalers alone are projected to deploy over $600 billion in infrastructure capex this year. Corporate capital is clearly migrating away from in-office work space toward the high-compute systems and AI infrastructure that now drive global productivity.

2. A big insider buy at Skyward. Last week, Skyward Specialty Insurance (SKWD) CEO Andrew Robinson purchased $1.03 million in SKWD shares, boosting his listed holdings by 15%. Robinson’s first-ever purchase (of this Complete Investor recommendation) also marked a sharp reversal: he had sold stock five times over the prior 13 months. Insider purchases of this magnitude – especially first-time buys from a top executive – have historically been one of the most reliable signals that management believes a stock is undervalued.

3. Consumer staples show strength. While the S&P 500 slipped 0.9% in February, the consumer staples sector surged – Coke bottler Coca-Cola Consolidated (COKE) rose 34.5% after reporting record 2025 revenue and operating income, The Hershey Company (HSY) jumped 23.3% following a Q4 earnings beat, and Colgate-Palmolive (CL) increased 15.6%… AI can’t brush your teeth – yet.

With the price of liquefied natural gas (“LNG”) rising sharply globally, shares of LNG producer Venture Global (VG) – part of our Best Buys until January 2026 – are up 77% year to date.

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On Monday, Porter wrote what he called “An Open Letter To The Board Of Berkshire Hathaway,” saying…

Numerous readers wrote in to comment.

David A. writes:

Porter Comment: Wasn’t asking anyone to sell. The ROE has been below market for 20+ years. It won’t outperform the market. Too many lousy assets. Needs to be restructured, as I outlined.

Tom L. writes:

Dan H. writes:

Porter Comment: To effect change at the business and to educate the public about the risks to the company, which are substantial.

Marc K. writes:

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