Target’s latest revenue report shows that the company may be losing the retailer it once had. The company reported first quarter revenue and revenue that missed analysts’ expectations on Wednesday, citing consumer sentiment, tariff uncertainty and DEI rebound. Targets were also drawn back to year-round guidance.
“The target’s strategy, scale and long-term perspective allow us to remain resilient during difficult times and continue to invest in the future,” CEO Brian Cornell said in a news release. “We are not satisfied with recent performance and are focused on driving long-term profitable growth and accelerating strategies to deliver the assortment, experience and value that consumers expect from their targets.”
Investors were also not satisfied with recent performance. Target (TGT) stocks fell about 5% at the end of Wednesday. The company reported a diluted profit of $2.27 Earnings per share The first quarter rose from $2.03 a year ago, but is still quite behind Wall Street expectations. First quarter revenue was $23.8 billion, down 2.8% year-on-year. Sales at the same store fell 3.8%.
Target’s first quarter challenge: tariffs, too many things, too few shoppers
In many ways, Target is currently facing the same challenges as other major retailers. It will increase the cost from customs duties and careful shoppers. However, the company has also recently faced several more unique challenges, including a decline in discretionary shopping, DEI rollbacks, subsequent boycotts and excess inventory.
“In the first quarter, our team and our business faced a very challenging environment that impacted performance with both traffic and sales, particularly with reduced discretionary categories,” Cornell said in a revenue call. “For several years, we’ve been putting pressure on discretionary companies, adjusting from the levels that spending has risen during the pandemic, moving further apart in the face of historically high inflation in needs-based categories.”
Target has long been known for its inexpensive yet chic approach when it comes to products it sells. Think about clothing, shoes, household items, and other apparel. It is known in the industry as a consumer discretion product. However, the target grocery category (consumer mandatory) is not as large as its competitor Walmart.
But here is the problem. In an age of economic uncertainty, consumers are less likely to spend on unnecessary items, like trendy shoes or new shirts, and more likely to continue buying what they need, like groceries.
The higher costs and uncertainty surrounding tariff policies also threw dents in first quarter revenue. The company’s leadership did not provide details related to the exact price increase that must be adopted for revenue calls tariffs, but said it will leverage its size, size and resources to navigate the tariffs. Earlier this year, Cornell expected to raise prices for fresh produce from Mexico as these tariffs were enacted.
The company also said the boycott caused by the rollback of the DEI initiative had an impact on first quarter results and discretionary sales.
All of these factors, followed by a decline in sales, created a unique inventory storm for the target. The company reported inventory rose 11% in the first quarter of last year. This means that Target has too much stock sitting on the shelf, but the company says it is trying to shrink its inventory.
Excessive inventory can be bad news for stock prices. It’s expensive to store extra items and you can force your target with discounts that ultimately damage your profit margins. Additionally, tariffs mean that imports from some countries make more goods more expensive.
The company has reduced sales and revenue guidance and currently expects a single-digit decline from its previous growth forecast of 1%, a single-digit decline, and a GAAP revenue revenue of $8 to $10 from its previous guidance of $8.80 to $9.80.
The analyst’s view was neutral on Wednesday. JP Morgan rated stock neutrals, Baird Analyst rated stock neutrals, and City also rated stock neutrals.
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