Target cuts its annual forecast due to tariff-driven uncertainty and a shift in its diversity, equity and inclusion (DEI) policies.
The U.S. major retailer reported its first-quarter earnings on Wednesday, which relied on 30% of store-labeled items in China. While its dependency is reduced by 5% by the end of the year, tariff-driven uncertainty has led to a decline.
Minnesota-based retailers expect lower unit sales. Wall Street analysts expect annual sales to increase by 0.27%, according to LSEG. Target previously forecasts net sales growth of about 1%.
This is because Bank of America recently predicted that consumers have eased spending as the latest report from the conference committee showed consumer confidence slowed, reaching a 13-year low in April. The U.S. economy also showed its first contraction in three years in the first quarter.
Target's first-quarter comparable sales fell 3.8% compared to analysts' estimates dropping 1.08%. It expects annual adjusted revenue from $7 to $9 per share, compared with the previous forecast of $8.80 to $9.80. Analysts expect $8.40.
DA Davidson analyst Michael Baker told the news agency, "Expectations for the target first quarter are low. Target's stock has underperformed, down nearly 28% this year, compared with Walmart's 9% earnings and a 2.3% decline in Home Depot.
Target's stock rolls in its disappointing earnings report. As of 11 a.m., NY (15:00 GMT), market opening fell 2.91% despite a growth of more than 1% over the past five days.
The target also stated that its first-quarter performance was affected by changes in DEI policies in January.
The goal has ended many DEI policies, drawing condemnation as some of its critics point out that its commitment to inclusion helps to attract younger, more diverse consumers. The decision is in line with the executive order of U.S. President Donald Trump to eliminate DEI policies for federal agencies and schools.
The rebound led to economic boycotts, especially the Rev. Jamal-Harrison Bryant, a Georgia pastor who organized a "fast" target store for 40 days. He has since called for continued efforts to recognize George Floyd's fifth anniversary in the murder of George Floyd at the target headquarters of Minneapolis.
CEO Brian Cornell said some reversals of DEI policies played a role in the first quarter performance, but he could not quantify the impact.
"Target's (results) do not help restore confidence in the company. Instead, they symbolize that they have made too many mistakes and lost the business in several ways," Neil Saunders, managing director of GlobalData, told Reuters, pointing out issues including poor inventory management, including poor inventory management and a lack of exciting commodities.
Target's forecast is in stark contrast to its larger rival Walmart, which last week maintained its annual forecast but said prices need to be raised due to tariffs. This attracted Trump's anger, who said Wal-Mart should "eat tariffs" on imported goods rather than passing fees.
Unlike Walmart, which generates most of its revenue by selling groceries like bananas, milk, toilet paper and shampoo, while most of the selling prices on Target are in the non-essential category - mainly clothing, furniture and beauty products, which come from China.
TJX, parent company of retailer TJ Maxx, also reported its earnings on Wednesday, while the tariff loom will maintain its forecast. Massachusetts-based Big Box retailer expects comparable sales to grow by 2% to 3% in the current quarter.
Unlike Target and Walmart, TJ Maxx relies on extensive procurement by middlemen in the United States, which limits the impact of any new tariffs on China.
On media calls, target executives refused to provide details about the potential price increase caused by tariffs. Most tariff-related growth may be offset, they said, but acknowledging that raising prices could be a "last last resort".
Cornell said pricing decisions will largely depend on ongoing efforts to source more products from the United States and reduce reliance on China.
"This will play a very important role," he said.
Rick Gomez, the company's chief business officer, said Target is in talks with suppliers to expand its procurement to other Asian countries outside China, reevaluate its product classification and adjust the timing and quantity of orders.
"These efforts are expected to offset the vast majority of gradual tariff exposures," Gomez said.