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Target sales tumbled more than expected in the first quarter as customers vented their anger over the retailer’s retreat from diversity initiatives and fears about the US economy mounted.
Same-store sales dropped 3.8 per cent year on year in the quarter as fewer shoppers visited — and spent less — at Target’s nearly 2,000 locations, the company reported. The fall was the first in a year and surpassed expectations for a 1.7 per cent slide, according to Visible Alpha.
Brian Cornell, Target’s chief executive, pointed to poor consumer sentiment, worries over US tariffs and a sustained backlash against its widely publicised rollback of diversity, equity and inclusion policies.
The Minneapolis-based company on Wednesday also lowered sales and profit forecasts for the year, and disclosed the departure of two senior executives less than a year after they took their roles.
“I want to be clear that we’re not satisfied with these results,” said Cornell.
Target shares closed 5.2 per cent lower in New York on Wednesday.
Once a Wall Street darling known as the home of affordable style, the company has struggled to revive sales that have faltered since the pandemic. Its stock was down 28 per cent this year prior to the earnings report.
The weakness at Target contrasts with some competitors. Walmart, the world’s largest retailer, last week reported that US like-for-like sales increased 4.5 per cent in the quarter, thanks in part to its grocery business. TJX, the owner of discount chains Marshalls and TJ Maxx, reported a 3 per cent rise in same-store sales on Wednesday.
The US retail sector has been shaken by President Donald Trump’s tariffs on imports from China and other countries. Walmart last week drew Trump’s scorn after saying it would be forced to raise prices to cover the cost of the levies.
Target relies on China for 30 per cent of its in-house brands. Executives outlined tactics to soften the cost of tariffs including negotiating with vendors, increasing the number of countries where its merchandise was produced and concentrating on cheaper items in its assortment.
Raising prices was “the very last resort”, Cornell said. But he warned tariffs threatened “massive potential costs”.
“The difficulty level has been incredibly high, given the magnitude of the [tariff] rates we’re facing and a high degree of uncertainty on how these rates and impacted categories might evolve,” Cornell told analysts.
Executives acknowledged financial damage from boycotts aiming to punish the retailer’s retreat from DEI policies in January. While Target was one among many companies to scale back diversity commitments, the move angered customers who had admired its long-standing support for social causes. Cornell cited the “reaction to the updates we shared on belonging in January”, referring to the group’s new strategy on inclusion.
“The backlash against the DEI pullback is real,” said Toopan Bagchi, a former Target executive and managing director at consultancy Starship Advisors. Target “has been at the forefront of a lot of challenging social situations or moments, and so people expect more”.
In a note to employees in early May, Cornell said “it’s been a tough few months” and acknowledged that “silence from us has created uncertainty” as he reaffirmed the company’s commitment to inclusivity.
To lure customers back, Target has been refreshing its inventory and in-store displays, including the launch of more than 10,000 new items from swimwear to snacks this summer and free giveaway events during Saturdays in June.
Target also announced that Christina Hennington, chief strategy and growth officer, and Amy Tu, chief legal and compliance officer, would leave the company. Hennington and Tu assumed their roles in July and August 2024, respectively.
Target on Wednesday forecast a “low-single digit decline in sales” for this year, scrapping earlier guidance for a 1 per cent rise. It also cut its guidance for adjusted earnings per share.
Net sales in the first quarter were $23.8bn, down 2.8 per cent year on year and below estimates of $24.3bn.
Net income rose 10 per cent to $1bn, but the figure was flattered by nearly $600mn in one-time pre-tax gains from a legal settlement. Excluding the settlement, adjusted earnings per share declined 35.9 per cent.
