Target vs. Build-A-Bear: Which Retail Stock Offers More Upside?

With consumer trends rapidly changing and the retail sector under constant pressure to innovate, Target Corporation TGT and Build-A-Bear Workshop BBW have emerged as intriguing names for investors to watch. TGT is focused on revitalizing growth through technology investments, AI-driven efficiency and its Enterprise Acceleration strategy, while BBW is delivering record results through a capital-light, partner-operated expansion model and strong brand monetization.

As both navigate tariff pressures and shifting consumer demand, the key question for investors is: which company’s strategy will deliver stronger returns in the year ahead?

The Case for TGT

Target is making progress in navigating a challenging retail environment by leveraging its strong brand equity, diverse product assortment and operational discipline. Its digital performance remains a key growth driver, with comparable online sales rising 4.3% year over year in the second quarter of fiscal 2025. Same-day delivery through Target Circle 360 jumped more than 25%, underscoring how digital convenience and membership benefits are enhancing customer loyalty.

The company’s profitable digital ecosystem also supports higher-margin ventures, such as Roundel and Target Plus, both of which continue to expand. In the second quarter, Target deployed more than 10,000 AI licenses to enhance forecasting accuracy, automate manual processes and improve replenishment. These advancements contributed to the company’s best on-shelf availability in years and bolstered the reliability of its digital fulfillment operations.

Merchandising efforts are gaining traction as well. The newly introduced FUN 101 strategy infused cultural relevance and innovation into hardlines, driving more than 5% year over year category growth in the second quarter — the strongest performance since 2021. Trading cards, tech accessories and the Nintendo Switch 2 were notable standouts, while apparel and food and beverage benefited from trend-right and fresh assortments.

However, overall sales still reflected macroeconomic headwinds. Net sales declined 0.9% year over year, while comparable sales fell 1.9%. Adjusted EPS dropped to $2.05 from $2.57 due to tariff-related costs and inventory adjustments. These pressures highlight the need for sustained execution and continued agility as Target works to regain consistent, profitable growth in the coming quarters.

Target is taking bold steps in response to mounting competitive pressures. According to CNBC, the retailer announced plans to eliminate 1,800 corporate positions, a move that includes 1,000 layoffs and the removal of 800 roles, representing about 8% of its global workforce. The retailer aims to streamline decision-making, create a leaner operating structure and fast-track critical projects to rebuild customer loyalty.  

The Case for BBW

Build-A-Bear’s strength lies in its transformation from a mall-based retailer into a diversified, brand-driven omnichannel company. Its second-quarter fiscal 2025 results marked the most profitable period in its history, with revenues rallying 11.1% year over year to $124.2 million, pretax income rising 32.7% and earnings jumping 46.9% to 94 cents per share. These record figures reflect an evolving business model that balances innovation with disciplined execution and efficient cost management.

A key driver of this success is Build-A-Bear’s capital-light, partner-operated expansion model. Fourteen experience locations were opened in the quarter, of which 86% were international, expanding the brand to 32 countries across North America, South America, Europe, Australia, Asia and Africa. Partner-operated stores now represent about a quarter of the total network, enabling rapid global scaling without heavy capital investment. This model enhances profitability through wholesale and royalty streams while diversifying revenue sources.

Innovation and consumer engagement have also fueled the company’s growth. The Mini Beans collection, introduced in 2024, surged sales 80% year over year and attracted young consumers and adult collectors. Seasonal campaigns, such as the Fruit Stand assortment and Halloween-themed launches, have strengthened digital visibility and driven record engagement. E-commerce demand grew 15.1%, supported by strong consumer response to key product launches.

However, the company continues to face challenges from tariff exposure and rising costs. Management expects tariff-related headwinds and higher labor expenses to total $16 million in fiscal 2025. While tariffs on imports from China and Vietnam and elevated labor costs pose potential cost pressures, Build-A-Bear has maintained strong margins through selective pricing actions, sourcing flexibility and disciplined expense management. Nonetheless, prolonged cost inflation may weigh on profitability if not offset through continued operational efficiencies.

Elevated SG&A expenses and higher inventory levels also present ongoing risks. Operating expenses increased 140 basis points to 45.4% of revenues, driven by wage inflation and higher store-level costs, while inventory rose 22% year over year to $81.8 million.

How Does the Zacks Consensus Estimate Compare for TGT & BBW?

The Zacks Consensus Estimate for Target’s current fiscal-year sales and EPS implies year-over-year declines of 1.4% and 16.3%, respectively. The consensus estimate for EPS for the current fiscal year has declined 3 cents to $7.42 over the past 30 days.

The Zacks Consensus Estimate for Build-A-Bear’s current fiscal-year sales and EPS suggests year-over-year increases of 7.4% and 6.9%, respectively. The consensus estimate for EPS for the current fiscal year has been unchanged at $4.03 over the past 30 days.

Stock Performances of TGT & BBW

Over the past month, shares of Target have gained 10.1%, while Build-A-Bear has slumped 21.5%. Target’s advance reflects investor confidence in its improving digital performance, operational efficiency and merchandising gains. In contrast, Build-A-Bear’s decline stems from rising costs, tariff-related pressure and higher inventory levels that have dampened sentiment despite strong recent results.

Dive Into Stock Valuations of TGT & BBW

Target is trading at a forward price-to-sales (P/S) multiple of 0.42, below its median of 0.59 in the last three years. Build-A-Bear’s forward 12-month P/S multiple sits at 1.34, above its median of 0.79 in the last three years. We note that Build-A-Bear appears to be pricier than Target in terms of their current P/S ratios.

TGT or BBW: Which Is the Better Bet Now?

Target stands out as the stronger investment candidate, supported by improving digital momentum, AI-driven operational efficiency, and disciplined inventory and cost management. Its focus on technology integration, expanding fulfillment capabilities and merchandising innovation provides a solid foundation for sustained recovery and long-term growth. The stock’s attractive valuation relative to historical levels further strengthens its investment appeal.

While Build-A-Bear continues to deliver record profitability and expand through its capital-light, partner-operated model, rising tariff exposure, higher labor costs and elevated inventory levels pose near-term risks. In the current environment, Target’s operational resilience, scale advantages and clearer path to consistent growth make it the better option to hold.

Both Target and Build-A-Bear currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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