In New York, Target experienced a downturn in both sales and profits during the essential holiday quarter as consumer spending declined. The company has indicated that it will face significant pressures on its profits as the year begins, partly due to tariffs imposed on trade with Mexico, Canada, and China, along with other financial burdens. During Target’s annual investor meeting on Tuesday, CEO Brian Cornell revealed that the cost of produce sourced from Mexico, such as avocados, will soon rise industry-wide. While he refrained from addressing specific price increases at Target, Cornell cautioned that consumers might encounter escalated prices on certain goods at their stores.
Cornell mentioned the rapid developments in trade tariffs and the need for a measured response, emphasizing the importance of managing controllable factors without overreacting to short-term fluctuations. Although Target surpassed many financial forecasts, its stock value dropped by 5% during early afternoon trading, concurrent with a broader market decline. A slowdown in February sales was partly attributed to severe weather conditions that negatively affected apparel sales and waning consumer confidence, leading Target to predict stagnant sales growth for the year amid rising economic uncertainty.
The announcement of Target’s fiscal fourth-quarter results coincided with its annual investor meeting held in New York. The company disclosed plans to invest between $4 billion and $5 billion this year in expanding its store network, accelerating online delivery, shortening product cycles, and other strategic initiatives. Executives indicated that reducing the time frame from product conception to shelves would aid in trend adaptation and minimize the risk of overstocking.
This year, Target aims to open 20 new stores and anticipates generating an additional $15 billion in sales by 2030. However, the implications of tariffs and broader economic challenges were significant factors in their financial outlook. President Donald Trump’s recent tariffs on Canada and Mexico took effect on Tuesday, impacting markets globally and prompting costly retaliations from North American partners and China. In response, China has announced 15% additional tariffs on various U.S. agricultural products and heightened restrictions on U.S. business activities.
Retailers like Target are grappling with decreased consumer spending in the face of economic unpredictability. Back in 2017, Target sourced 60% of its store-brand products from China, but that figure has since fallen to 30%, and the company aims to further reduce it to 20% ahead of schedule. Target’s chief commercial officer, Rick Gomez, shared that efforts are underway to shift sourcing to Guatemala, Honduras, and even the U.S.
Gomez stated that specific price adjustments cannot presently be forecasted, as Target’s teams are negotiating solutions dynamically. For example, rather than increasing the price of $3 Christmas ornaments to $3.60, they may choose to raise prices on holiday stockings instead. Similarly, to maintain the $5 T-shirt price point, they may adjust pricing on dresses where there is greater flexibility.
Gomez emphasized the complexity of pricing strategy, balancing consumer perception and maintaining affordable options. With a sharp rise in grocery prices, consumers are reducing discretionary spending, a vulnerable area for Target due to its reliance on sales of discretionary items like clothing and electronics. Despite a net income of $1.1 billion, or $2.41 per share, surpassing Wall Street’s $2.26 expectation, the figure is a decrease from the previous year’s $1.38 billion profit, influenced by one less week of sales in the latest quarter.
Target’s revenue declined from $31.9 billion to $30.91 billion, yet exceeded forecasts. For the current year, the company estimates earnings per share in the range of $8.80 to $9.80, against Wall Street’s $9.29 expectation and anticipates a 1% rise in net sales with flat comparable sales. The most recent quarter saw a 1.5% increase in comparable sales, surpassing the previous quarter’s 0.3% and second quarter’s 2% gain, while recovering from a first-quarter 3.7% decline.
CFO Jim Lee expressed optimism for an uptick in the current quarter’s sales, while remaining cautious with expectations in the forthcoming year, as the company continues to monitor market trends closely.
