Target has reduced its annual sales forecast following a steeper-than-expected decline in quarterly same-store sales, citing reduced consumer spending due to inflation concerns and the economic impact of new tariffs introduced by President Donald Trump’s administration.
The retailer also acknowledged that public reaction to its rollback of diversity, equity and inclusion (DEI) policies earlier this year has negatively affected performance.
Decline in discretionary spending hits first-quarter results
Target reported a 3.8% drop in comparable sales for the first quarter, significantly below analyst expectations of a 1.08% decline.
On an adjusted basis, earnings per share came in at $1.30, missing the forecast of $1.61. Executives pointed to weaker demand for non-essential categories such as apparel and homeware, sectors that rely heavily on imports from China.
Inflation fears and growing economic uncertainty have caused consumers to cut back on discretionary purchases.
CEO Brian Cornell said that while most tariff-related costs might be offset, raising prices could not be ruled out.
Target is also working to reduce its dependence on Chinese suppliers, who currently account for 30% of the company’s store-brand products. This figure is expected to fall below 25% by year-end, down from 60% in 2017.
Backlash over diversity policy changes adds pressure
In January, Target scaled back several of its DEI initiatives, a move that coincided with an executive order from President Trump eliminating DEI requirements in federal institutions.
The decision prompted criticism from some long-standing customers and civil rights advocates.
Reverend Jamal-Harrison Bryant led a 40-day boycott of Target stores, coinciding with the fifth anniversary of George Floyd’s death in Minneapolis, the city where Target is headquartered.
Executives admitted that the DEI controversy had a tangible impact on customer behaviour in the first quarter, although they declined to specify the financial effect.
Analysts have said the move risks alienating younger, more diverse shoppers, a demographic that has been key to Target’s recent growth.
Stock underperforms amid wider retail challenges
Shares of Target fell 4% following the earnings announcement, extending a year-long decline of 40%. In contrast, competitors Walmart and Costco have seen significant gains over the same period.
Market watchers noted that Target’s struggles are compounded by ongoing issues such as merchandise missteps, inventory challenges and retail crime.
The company now expects a low single-digit decline in annual sales, reversing its earlier forecast of around 1% growth. Annual adjusted earnings are projected to fall between $7.00 and $9.00 per share, down from the previous range of $8.80 to $9.80.
Analysts warn that without a clear strategy to rebuild consumer trust and adapt to the new trade environment, Target may face continued pressure in an increasingly competitive retail landscape.
Navigate the shifting tariff landscape with real-time data and market-leading analysis. Request a free demo for GlobalData’s Strategic Intelligence here.
