Target cuts annual forecast as tariffs, boycotts weigh on sales
Target has slashed its annual forecasts amid a pullback in discretionary spending due to tariff-driven uncertainty and a backlash against shifts in its diversity, equity and inclusion (DEI) policy.
The United States big box retailer, which reported its first-quarter earnings on Wednesday, relies on China for 30 percent of its store label goods. While it is on track to reduce its dependency by another 5 percent by the end of the year, tariff-driven uncertainty has caused a slump.
In its forecast, the Minneapolis, Minnesota-based retailer expects a low single-digit decline in annual sales. Wall Street analysts expected a marginal increase of 0.27 percent in annual sales, according to the LSEG. Target previously forecasted net sales growth of about 1 percent.
This comes as Bank of America recently forecasted that consumers have eased up on spending as the most recent report from The Conference Board showed a slowdown in consumer confidence, which hit a 13-year low in April. The US economy also showed the first contraction in three years in the first quarter.
Target's first-quarter comparable sales fell 3.8 percent compared with analysts' estimates of a 1.08 percent decline. It expects annual adjusted earnings of $7 to $9 per share, compared with its prior forecast of $8.80 to $9.80. Analysts were expecting $8.40.
'Expectations were very low for Target's first quarter. Even against that, Target's results came in light,' Michael Baker, a DA Davidson analyst, told the news agency Reuters. Target's stock has performed poorly, down nearly 28 percent this year, in contrast to Walmart's 9 percent gain and Home Depot's 2.3 percent decline.
Target's stock is tumbling on the news of its disappointing earnings report. As of 11am in New York (15:00 GMT), it was down 2.91 percent from the market open although it is up more than 1 percent over the past five days.
Target also said its first-quarter performance was impacted by changes made to its DEI policies in January.
Target ended many of its DEI policies, drawing condemnation as some of its critics noted that its commitment to inclusiveness had helped attract younger, more diverse consumers. The decision generated 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 economic boycotts, notably from Reverend Jamal-Harrison Bryant, a Georgia pastor who organised a 40-day 'fast' of Target stores. He has since called for those efforts to continue in recognition of the fifth anniversary of George Floyd's murder by police in Minneapolis, Target's headquarters.
CEO Brian Cornell said the reversal of some DEI policies played a role in first-quarter performance but he couldn't quantify the impact.
'Target's [results] do nothing to restore confidence in the company. On the contrary, they are emblematic of a business that has made too many mistakes and has lost its way on several fronts,' GlobalData Managing Director Neil Saunders told Reuters, pointing to issues including poor inventory management and a lack of exciting merchandise.
Target's forecast contrasts with its bigger rival Walmart, which maintained its annual forecasts last week but said it would need to pass on higher prices due to tariffs. That has drawn the ire of Trump, who said Walmart should 'eat the tariffs' on imported goods instead of passing on the costs.
Unlike Walmart, which generates the bulk of its revenues by selling groceries like bananas, milk, toilet paper and shampoo, a majority of what Target sells falls in the nonessential category – largely apparel, home furnishings and beauty products, which it sources from China.
TJX, the parent company of retailer TJ Maxx, also reported its earnings on Wednesday, and while tariffs loom, the company is set to maintain its forecasts. The Massachusetts-based big box retailer expects comparable sales to grow 2 percent to 3 percent during the current quarter.
Unlike Target and Walmart, TJ Maxx, relies on expansive sourcing from middlemen in the US, which limits the impact of any new tariffs on China.
On a media call, Target executives declined to provide details on potential price increases due to tariffs. Most tariff-related increases could be offset, they said, but acknowledged that raising prices could be a 'last resort'.
Cornell said pricing decisions will largely depend on ongoing efforts to source more products from the US and reduce reliance on China.
'That is going to play a very important role,' he said.
Rick Gomez, the company's chief commercial officer, said Target is working on negotiating with suppliers, expanding sourcing to other Asian countries beyond China, re-evaluating its product assortment, and adjusting the timing and quantity of orders.
'These efforts are expected to offset the vast majority of the incremental tariff exposure,' Gomez said.
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This will be partly met through creative accounting and reflects a desire to trumpet a big number to satisfy a petulant President Trump. The 5 percent headline includes 1.5 percent spent on military-related infrastructure, which could be broadly defined to include civilian expenditure. Even so, it reflects a huge escalation of military expenditure over the next decade from an already very high level. Last year, NATO spent $1.5 trillion on the military – more than half of global military spending. If members comply with the core 3.5 percent target by 2030, that would mean a total of $13.4 trillion in military expenditure. It's an impossible figure to grasp, but if you stacked it in one-dollar bills, you could make almost four piles that reach the moon. It could also be distributed as a one-off cash bonus of $1,674 to every person on the planet. In reality, the money will be diverted – most of all from social and environmental spending – even though 30 percent of Europeans report difficulty in making ends meet and climate scientists warn that we have two years left to keep temperature increases below the international target of 1.5 degrees Celsius (34.7 degrees Fahrenheit). Spanish Prime Minister Pedro Sanchez, who fought for a partial exemption from the 5 percent goal, was the most honest about this costly trade-off: 'If we had accepted 5 percent, Spain would have to spend by 2035 an extra 300 billion euros on defence. Where would it come from? From cuts in health and education.' Social and environmental spending is already on the chopping block. In February, the United Kingdom announced it would reduce its aid budget to 0.3 percent of GDP to pay for military spending increases – a year after it won an election committing to increase foreign aid. Belgium, the Netherlands and France followed suit, announcing aid cuts of 25 to 37 percent. The United States, under Trump, has decimated its overseas aid and climate programmes and reduced healthcare funding while proposing a record $1 trillion expenditure on the Pentagon. Europe is falling far behind on its own environmental and social goals, with its primary funding vehicle, the Recovery and Resilience Facility (RRF), expiring in 2026. The European Trade Union Confederation (ETUC) concludes that most European NATO members will be unable to meet the 3.5 percent NATO target without cutting budgets, raising taxes or changing fiscal rules. NATO's spending spree will not only divert money – it will worsen the climate crisis. As one of the world's biggest carbon polluters, it is investing in more gas-guzzling jets, tanks and missiles. Military emissions are notoriously hard to track due to limited data, but one report estimates that 3.5 percent of GDP spending would lead to 2,330 million metric tonnes of greenhouse gases by 2030 – roughly the same as the combined annual emissions of Brazil and Japan. NATO's justification is that increased investment is needed to confront the threats of 'Russia' and 'terrorism'. Yet there is no rationale behind the 5 percent target or details on why threats to NATO have so drastically increased. Nor is there self-examination on how NATO's actions partly set the stage for Russia's invasion of Ukraine. Russia has increased military spending, but it still spends 10 times less than NATO. Nor could it catch up militarily with NATO's 32-strong alliance, given its economy: $2 trillion in 2024 (nominal GDP), compared with $26 trillion for non-US NATO countries and $29 trillion for the US alone. As for 'terrorism', the idea that NATO's increased spending could deter it ignores the failures of the 'War on Terror', where NATO interventions in Afghanistan and Libya prompted instability and fighter recruitment. The security NATO seems most concerned with is that of its arms firms. Long before Trump's pressure, arms firms have pushed for higher European military spending through lobbying groups like the AeroSpace and Defence Industries Association of Europe (ASD). They have successfully made military security an overriding European Union objective, winning ever more public money for research and industry support. Now they are reaping the rewards with booming revenues and profits. Before the NATO summit, BlackRock released an investment report celebrating the arms industry as a 'dynamic growth industry' and a 'mega force' that will drive investment trends in the coming years. NATO's idea of security diverts money from social needs, worsens the climate crisis, rewards arms firms profiting from global conflict, and chooses war over diplomacy. Its bellicose stance in The Hague this week makes it one of the greatest threats to global security – even to life on this planet. It is up to the peoples of NATO countries to reject this deadly path and reclaim security based on cooperation, justice and peace. The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial stance.
