By Sabrina Escobar

Target's fiscal year got off on the wrong foot. The big-box retailer's earnings, revenue, and guidance all fell short of expectations as tariff-related uncertainty and consumer boycotts crimped consumer demand.

The Minneapolis-based retailer's revenue fell 2.8% year over year to $23.8 billion for the quarter ended May 3, missing expectations for $24.2 billion, according to FactSet. Transactions fell 2.4% in the retailer's fiscal first quarter, Target said.

CEO Brian Cornell pointed to a series of factors negatively affecting Target's sales, including tariff uncertainty, lower consumer sentiment, weak demand for discretionary items, and boycotts tied to the company's decision to roll back certain diversity, equity, and inclusion initiatives.

Softer sales growth hit the bottom line, too. Target's adjusted first-quarter earnings of $1.30 a share were lower than analyst consensus estimates that called for $1.61. The adjusted figure excludes gains from litigation settlements, and reflects higher markdown rates and supply chain costs. Lower inventory shrink -- a term that often refers to shoplifting -- helped offset some of the margin pressures.

Unadjusted earnings, or earnings in accordance with generally accepted accounting principles, were $2.27, better than projections for $1.62.

"I want to be clear that we're not satisfied with these results, but we're moving with urgency to navigate through this period of volatility, " Cornell said on a call with reporters.

Executives expect the issues that afflicted Target in the first quarter will drag into the current quarter, which has prompted the company to adjust its full-year earnings and sale guidance. For the fiscal year ending next January, the company now expects a low-single digit decline in sales. Past guidance called for sales to grow around 1% for the year, and analysts were projecting sales to be flat from a year ago.

The range for adjusted earnings per share is now $7 to $9, lower than the prior range of $8.80 to $9.80. The range's new midpoint, $8, is below the Wall Street projection for $8.34 a share.

The outlook factors in the expected impact of tariffs and a weaker consumer spending environment, said Jim Lee, Target's chief financial officer. He added that the company was "hard at work" to minimize the full impact of tariffs.

Target may have to increase prices "where necessary," executives said, although they stopped short of endorsing broad-based price increases. In March, Cornell had warned that levies on Mexico and Canada would result in higher prices for certain produce items. Rival Walmart said Thursday it would likely have to increase prices to offset some of the margin impact.

When asked whether Target had raised prices since March 4, management said the company regularly adjusted prices -- and would likely continue to do so as part of its regular functions.

"We look at competition and we make adjustments literally each and every week," Cornell said. "So we're constantly adjusting pricing, some are going up, some will be reduced, but that's an ongoing effort that takes place each and every day."

Target is also negotiating with vendors, re-evaluating product assortments, adjusting order timing, and switching production country. About half of what Target sells comes from the U.S., and the company has gradually cut its reliance on Chinese imports for private labels to about 30% from 60% previously.

In response to the poor performance, the company announced it is establishing a new initiative, called the Enterprise Acceleration Office. The team, overseen by Chief Operating Officer Michael Fiddelke, aims to drive "even greater speed and agility across the company" and adds on to Target's current business-revitalization efforts, outlined at the company's investor day in March. These include spending over $4 billion on Target's stores, supply chain, and technology to bring back the brand's "Tarzhay" luster.

Yet while Target's management team seemed bullish on their ability to execute, Wall Street hasn't bought into the plan. Target stock is down 16% since the investor day, compared with the S&P 500's 2.7% increase.

"We were disappointed with the lack of urgency we felt at TGT's March meetings regarding initiatives to drive sales and recover margins," wrote John Zolidis, president and founder of Quo Vadis Capital, in a note Tuesday. "This, together with the company's positioning from a macroeconomic standpoint, is holding us back from getting more constructive on the shares."

Target also announced that Christina Hennington, chief strategy and growth officer, and Amy Tu, chief legal and compliance officer, will leave the company.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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May 21, 2025 06:30 ET (10:30 GMT)

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