Target warns about consumer spending. It’s another sign of stress on America’s economy
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Target said Tuesday that consumer confidence is declining, and it warned about the impact of tariffs. It’s the latest in a series of red flags about the health of US shoppers and the economy.
The company said its sales declined in February and it expects sales to only grow around 1% this year.
Last month, sales were “soft” as cold weather impacted clothing spending. But “declining consumer confidence impacted our discretionary assortment overall,” Jim Lee, Target’s chief financial officer, said in a statement. The majority of Target’s merchandise is discretionary, such as clothing and home goods, and the company is highly exposed to any slowdowns.
Target also said that “tariff uncertainty” will impact its profit this quarter. Target’s (TGT) stock rose very slightly in premarket trading because investors predicted Target’s quarter would be even worse than it was.
Although Target expects those trends, which are weighing on customers’ confidence, to moderate, the company said it remains “appropriately cautious” about 2025.
Target’s sluggish results come after Walmart, America’s largest retailer, warned recently that 2025 would be a rockier year. Walmart said it expected sales to slow down amid concerns about inflation and tariffs.
Consumer confidence last month registered its biggest monthly decline since 2021 as inflation fears creep back.
A global trade war is also breaking out, adding to economic worries.
President Donald Trump’s blanket 25% tariffs on Mexico and Canada took effect on Tuesday. Trump also doubled the tariff on all Chinese imports to 20% from 10%. Those import taxes sit atop existing tariffs on hundreds of billions in Chinese goods. China and Canada immediately retaliated with tariffs on American goods.
The Trump administration said the tariffs were necessary to stem the flow of fentanyl into the United States. But the tariffs threaten to raise the prices Americans pay for a wide array of goods that are imported from the three nations, which collectively import more than 40% of all US goods by value.
Target CEO Brian Cornell said in an interview with CNBC on Tuesday that Trump’s tariffs on Mexico may force the company to raise prices on fruits and vegetables as soon as this week. Cornell said Target relies heavily on Mexican produce imports during the winter.
“Those are categories where we’ll try to protect pricing, but the consumer will likely see price increases over the next couple of days,” he said.
Target is also under pressure from consumers frustrated by its shift away from diversity, equity and inclusion (DEI) efforts.
Days into the Trump presidency, Target announced it was eliminating hiring goals for minority employees, ending an executive committee focused on racial justice and making other changes to its diversity initiatives. Target said it remained committed to “creating a sense of belonging for our team, guests and communities” and also stressed the need for “staying in step with the evolving external landscape.”
Target’s retreat sparked anger from progressive customers and boycott calls, particularly from Black consumers.
Rev. Jamal Bryant of New Birth Missionary Baptist Church in Stonecrest, Georgia, has called for 100,000 people to begin a 40-day boycott of Target on Wednesday to coincide with the start of Lent. Participants are encouraged to purchase products from Black-owned businesses during this period.
There are signs that the blowback from Target’s move is impacting the company.
Customer visits to Target, Walmart and Costco have slowed over the last four weeks, but they have dropped the most at Target, according to Placer.ai., which uses phone location data to track visits. The slowdown could also be attributed to weather, economic conditions and other variables, Placer.ai cautioned.
During the week of February 17, the latest week available, foot traffic to Target dropped 7.9% and 5.2% to Walmart. Foot traffic to Costco, which has stood by its DEI policies, increased 4.8%.
The data “shows a clear drop in traffic in late January into mid-February following the company’s step back from DEI,” Joseph Feldman, an analyst at Telsey Advisory Group, said in a note to clients last week.
This story has been updated with additional context and developments.
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Backlash to Target’s DEI pullback
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Target, Best Buy Warn US Consumers of Tariff Price Hikes
Target Corp. and Best Buy Co. warned consumers to expect higher prices as a direct result of the tariffs US President Donald Trump imposed on Mexico, Canada and China overnight.
Target Chief Executive Brian Cornell said its shoppers would likely see price hikes in its stores “over the next couple of days,” in a CNBC interview on Tuesday, just hours after the tariffs went into effect.
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Target warns February sales were soft, adding to concerns about consumer health
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Target
on Tuesday warned that it expects a “meaningful” drop in first-quarter profit compared with the year-ago period as it contends with “ongoing consumer uncertainty,” soft sales in February and concerns around tariffs.
The first three months of the year tend to be slow for retailers because consumers typically pull back after the holiday shopping season. But Target’s tepid guidance comes after Walmart
and E.l.f. Beauty
raised concerns last month about a slower-than-usual start to the year.
Coupling those weak forecasts with a sharper-than-expected decline in consumer spending in January and the biggest drop in consumer confidence since 2021 in February, Target’s guidance is the latest warning sign about the health of the consumer and the U.S. economy.
Plenty of Target’s troubles have been self-inflicted in recent years, but as a big-box retailer that caters to large swaths of the population, its performance can offer insight into spending patterns ahead, especially when other companies have made similar comments.
In a statement, Target’s finance chief, Jim Lee, said February sales were “soft” and “declining consumer confidence” hurt discretionary sales. He also blamed “uncharacteristically cold weather,” saying it affected apparel sales.
“We expect to see a moderation in this trend as apparel sales respond to warmer weather around the country, and consumers turn to Target for upcoming seasonal moments such as the Easter holiday,” said Lee. “We will continue to monitor these trends and will remain appropriately cautious with our expectations for the year ahead.”
Target CEO Brian Cornell also told CNBC that President Donald Trump’s 25% tariffs on Mexican imports set to take effect Tuesday could force the company and other grocers to raise prices on produce like bananas, strawberries and avocados in the coming days.
Beyond its outlook, Target reported fiscal fourth-quarter earnings and revenue that beat Wall Street’s expectations.
Here’s how Target did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
The company’s shares fell nearly 5% in morning trading Tuesday.
Target’s net income for the three-month period that ended Feb. 1 was $1.10 billion, or $2.41 per share, compared with $1.38 billion, or $2.98 per share, a year earlier.
Sales dropped to $30.92 billion, down about 3% from $31.92 billion a year earlier. In the year-ago period, Target benefited from an extra week, which has skewed year-over-year comparisons.
For its current fiscal year, Target is expecting earnings per share to be between $8.80 and $9.80, which at the midpoint is more or less in line with estimates of $9.31, according to LSEG. However, it’s expecting sales to grow just 1%, well behind estimates of 2.6%, according to LSEG.
Target’s first-quarter guidance will also likely surprise investors. While it declined to share specific figures, Target said it’s expecting “to see meaningful year-over-year profit pressure in its first quarter relative to the remainder of the year.” Meanwhile, analysts were expecting profit to grow 0.9%, according to LSEG.
In the lead-up to Target’s earnings report, the retailer raised its comparable sales guidance for the fourth quarter in January after it saw steady traffic during the crucial holiday shopping months, but it stood by its profit guidance, indicating that it relied on deals and discounts to drive sales.
That strategy ultimately impacted profits. During the quarter, Target’s gross margin fell about 0.4 percentage point due in part to “higher promotional and clearance markdown rates,” it said in a press release.
Target, which has long enticed shoppers with its wide range of discretionary merchandise, has struggled to win consumers over with those nice-to-have items amid persistent inflation, high interest rates, and steep competition from online discounters and rival Walmart. That shift in mix has hurt Target because discretionary merchandise tends to be more profitable to sell than household essentials like groceries and toothpaste.
The company has said that it’s been able to drive momentum when it offers new eye-catching merchandise – such as fresh workout gear, pet accessories or seasonal flavors of food.
For example, customers showed up and spent when Target started selling leggings from All In Motion, which came in bright colors and glittery patterns, for $25, Chief Commercial Officer Rick Gomez told CNBC in an interview last month. They also responded well when Target redesigned bras from its intimates and sleepwear line, Auden.
“When we have newness with style, on trend, at affordable prices, the consumer is willing to shop,” Gomez said.
During the fourth quarter, comparable sales trends in apparel grew by nearly 4 percentage points compared with the third quarter and Target is looking to sustain that momentum. At the end of February, Target said it was partnering with Champion and Warby Parker, which will see both brands show up in Target stores and online.
As part of its multiyear deal with Champion, Target will carry an exclusive line of sportswear that’s designed more for lounging and living, rather than proper gym clothes. With Warby Parker, Target will open five shop-in-shops and start offering the eyewear brand’s products online, with a larger rollout planned for next year.
The partnerships are designed to entice shoppers with fresh merchandise, bring new customers in and position Target to compete against its rivals, but it may take some time before these deals start bearing fruit.
Even though the agreements were announced at the beginning of the year, they won’t officially launch until the second half of 2025.
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