Target Corporation (NYSE: TGT ) shares tumbled more than 21% Wednesday after the retailer reported third-quarter earnings that fell well short of analyst expectations and provided disappointing guidance for the full year.

Target posted adjusted earnings per share of $1.85 for the third quarter, missing the analyst consensus of $2.30 by a wide margin. Revenue came in at $25.67 billion, slightly below estimates of $25.87 billion. Comparable sales inched up just 0.3% YoY, driven by a 2.4% increase in traffic but offset by lower average transaction amounts.

The company's full-year earnings guidance also disappointed investors. Target now expects fiscal 2025 EPS of $8.30-$8.90, well below the $9.52 consensus estimate.

"We saw several strengths across the business, including a 2.4% increase in traffic, nearly 11% growth in the digital channel, and continued growth in beauty and frequency categories," said Brian Cornell, CEO of Target. "At the same time, we encountered some unique challenges and cost pressures that impacted our bottom-line performance."

Cornell described the operating environment in the third quarter as volatile.

The retailer's gross margin rate declined 0.2 percentage points YoY to 27.2%, while its operating margin fell to 4.6% from 5.2% last year. Target cited higher digital fulfillment and supply chain costs due to managing higher inventory levels and new facilities coming online.

For the fourth quarter, Target projects approximately flat comparable sales and adjusted EPS of $1.85-$2.45.

Despite the weak results, Cornell expressed confidence in the company's holiday season preparations and long-term prospects, stating, "We remain confident in the underlying strength and fundamentals of our business, and our ability to deliver on our longer-term financial goals."

Analysts at Citi said they are downgrading Target from Buy to Neutral following the report, stating that although the third quarter may have had some unique challenges, they "believe very poor results at TGT in 3Q (and an uninspiring outlook for 4Q) show TGT is likely losing share to WMT."

JPMorgan analysts said, "margins were the expected area of upside and were critical to the stock reaction as it would have shed light on how reasonable the 2025 consensus 6.0% op margin is with expectations for a shrink-led beat."

"While shrink helped, fulfillment costs and, more importantly, carrying higher levels of inventory weighed on results and the margin guide biases the Street view of structural margins lower," concluded the bank.

Baird analysts clarified that while sentiment was already negative, Target's Q3 results fell well short of low expectations. "Healthy traffic (+2.4% vs. Walmart-US at +3.1%) and digital traction were the lone positives," they added.

Truist believes "the company is still suffering some repercussions from last year’s marketing challenges, may be increasingly impacted from some of their shrink initiatives (locking up basics/consumables, adding friction to the shopping process) and is likely caught up in Walmart’s (WMT, Buy) gravitation pull."

Roth MKM echoed that sentiment, saying they believe Target has not recovered from the 2023 boycott, with comp sales still below 2022 levels. "The quick, negative volatility bodes poorly for the key Holiday period and the strategic readiness for possible tariffs. Target customers have not returned from the 2023 boycott (a two-year decline greater than 2Q) and discretionary categories continue to contract," they wrote.

Finally, Piper Sandler stated that "on the heels of WMT's strong print yesterday, these results are particularly disappointing and suggest TGT is losing some share."