The goal reduced annual forecasts amid a rebound in discretionary spending due to tariff-driven uncertainty and changes in its diversity, equity and inclusion (DEI) policies.
The US box retailer, which reported first-quarter revenue on Wednesday, relies on China for 30% of its store-labeled products. While a further 5% reduction in dependency is on track by the end of the year, tariff-driven uncertainty has caused a recession.
The Minneapolis, Minnesota-based retailer expects a low single-digit decline in annual revenues. According to LSEG, Wall Street analysts were hoping for a slight increase in annual sales of 0.27%. Target had previously forecast net sales growth of around 1%.
This is because Bank of America recently predicted that consumers have eased spending as they recently showed a slower slower in consumer confidence, reaching 13-year lows in April. The US economy also showed its first contraction in the first quarter three years.
Target’s first quarter equivalent sales fell 3.8% compared to analyst estimates falling 1.08%. Annual adjusted earnings of $7-$9 per share are expected compared to previous forecasts of $8.80 to $9.80. Analysts were hoping for $8.40.
“Target’s first quarter expectations were very low, and yet Target’s results were clear,” Davidson analyst Michael Baker told news agency Reuters. Target’s stock has not fallen nearly 28% this year, in contrast to Walmart’s 9% gain and Home Depot’s 2.3% drop.
Target’s stocks have fallen into the news of a disappointing earnings report. As of 11am (15:00 GMT) in New York, it has increased by more than 1% over the last five days, but has fallen 2.91% since the market opened.
Dei Boycotts focuses on sales
Target also said its first quarter performance was affected by changes made to its DEI policy in January.
Target ended many of the DEI policies and elicited criticism as some of its critics said their commitment to inclusion helped attract younger and more diverse consumers. The decision attracted more attention as it coincided with US President Donald Trump’s executive order to eliminate DEI policies in federal agencies and schools.
The backlash led to an economic boycott, especially from Rev. Jamal Harrison Bryant, a Georgia pastor who organized a 40-day “fast” target store. He has since sought those efforts to continue to be recognized for the fifth anniversary of police murder of George Floyd in Target’s headquarters, Minneapolis.
CEO Brian Cornell said several DEI policy reversals played a role in first quarter performance, but its impact could not be quantified.
Worst than competitors
“Target’s (results) do nothing to restore confidence in the company. On the contrary, they represent businesses that have made too many mistakes and lost their way in some respects,” said Neil Sanders, managing director of Global Data, pointing to Reuters issues, including poor inventory control and a lack of exciting products.
Target’s forecast contrasts with its larger rival Walmart, which maintained its annual forecast last week, but said it would need to pass a higher price due to tariffs. It sparked Trump’s rage. Trump said Walmart should “eat tariffs” on imports, rather than handing over the costs.
Unlike Walmart, which generates a large portion of revenue by selling groceries such as bananas, milk, toilet paper and shampoo, the majority of what Target sells is in less-essential categories, such as equipment, furniture and beauty products from China.
TJX, the parent company of retailer TJ Maxx, also reported revenues on Wednesday, and the company plans to maintain forecasts while tariffs are looming. Massachusetts-based Big Box Retailer expects comparable sales to rise by 2% to 3% during the current quarter.
Unlike Target and Walmart’s TJ Maxx, it relies on vast sourcing from US Middlemen, limiting the impact of new tariffs on China.
Coming up price hikes
In the media call, target executives refused to provide details about potential price increases due to tariffs. They said most tariff-related increases could be offset, but they acknowledged that price increases could be a “last resort.”
Cornell said the pricing decision will rely heavily on continuing efforts to source more products from the US and reduce their reliance on China.
“It’s going to play a very important role,” he said.
The company’s chief commercial officer, Rick Gomez, said Target is working to expand negotiations with suppliers, procurement to other Asian countries outside of China, reassessing its product assortment and adjusting the timing and volume of orders.
“These efforts are expected to offset a large portion of the tariff exposure,” Gomez said.