Higher Energy Costs And Rising Consumer Defaults Spells Doom For Target
Inside today’s Daily Journal…
Essay: Target’s Demise Accelerates
The biggest energy shock ever
Higher energy leads to higher consumer prices
Private-credit cockroaches continue to emerge
Chart Of The Day… ExxonMobil (XOM)
Today’s Mailbag
On March 11 Target (TGT) announced price cuts on roughly 3,000 items.
Rather than trying to compete with differentiated merchandising, the mass-market retailer is moving to compete on price. Most prices are being cut between 10% and 20%. These changes reflect the reality of Target’s customers, who are clearly under growing financial pressure.
Facing a customer who can’t afford its cost structure, Target is… increasing its costs.
It’s doubling‑down on its brick-and-mortar strategy: building 30 more stores, “refreshing” 130 more, and increasing spending on staffing. In plain English, Target is choosing to both raise costs and cut prices in the face of a deteriorating consumer.
This – making less and spending (a lot) more – spells doom for Target’s dividend, which as we’ve been warning for months will soon be cut (and then eliminated).
Let’s briefly recap where we are.
Target’s old “cheap chic” selling proposition is gone. The weekend “Tarzay run” died with the rise of Amazon, same‑day delivery, and the permanent shift in how middle‑class families shop. The affluent “soccer mom” who Target spent 20 years cultivating has moved online… or has lost her high-paying job and now shops at Walmart.
The proof is in the numbers:
Sales fell in 2025, even in nominal terms, in an inflationary environment
Same‑store sales have been negative or flat in 11 of the last 13 quarters
Operating income is down more than 40% from its 2021 peak
Free cash flow after capex has been barely covering the dividend
In my earlier letters, I argued Target was “the new Kmart.” Management was allowing the stores to fall into disrepair (ghetto-ized) while saving all of the capital to pay dividends.
Target’s March 11 announcement – more stores, lower prices – confirms the end of this failing strategy. Investing more in high, fixed-cost stores that the consumer can’t afford will not lead to revenue growth – and especially not if Target must cut prices to drive traffic. In a world of higher energy prices and rising credit stress, Target is going to experience a material decline in revenue – never mind margins. That means its dividend probably won’t survive this year.
Remember, dividends are supposed to be paid out of sustainable, after‑investment earnings.
Target is marching into 2026 with:
A weakening customer: higher gas, higher utilities, higher credit-card interest rates
A structurally weaker business: shrinking traffic, especially on weekends
And a deliberate decision to cut prices on thousands of items
If the economy softens (and I believe it already is softening) Target’s business will collapse.
