In the past holiday quarter, Target experienced a decline in both sales and profits as consumers curtailed their spending, leading the retailer to anticipate significant pressure on its profits at the start of the new year due to tariffs and other expenses. Although the company managed to surpass most estimates, this achievement wasn’t enough to prevent a 4.5% drop in shares amidst a broader market downturn.
Target’s reported net income reached $1.1 billion, or $2.41 per share, which was above Wall Street’s projection of $2.26 per share as surveyed by FactSet. However, this was a decrease from the $1.38 billion profit recorded in the same period last year, attributed partly to the recent quarter having one fewer week of sales. The company saw its revenue decline to $30.91 billion from $31.9 billion, yet this still exceeded expectations.
In the face of consumer spending caution, the retailer and its peers are grappling with considerable uncertainty for the future. The economic climate is further clouded by President Donald Trump’s recent imposition of tariffs on Canada and Mexico, which came into effect on Tuesday. This has led to repercussions in the markets across Asia, Europe, and the U.S., while also inviting costly retaliatory measures from North American partners and China.
China, in response, has announced additional tariffs of up to 15% on key U.S. agricultural products like chicken, pork, soy, and beef, along with expanded restrictions on interactions with prominent U.S. companies. Such fiscal challenges compound consumer reluctance to spend on non-essential items, particularly as grocery prices rise. Since a substantial portion of Target’s sales originates from discretionary sectors such as clothing and electronics, this trend poses a potential threat.
Looking ahead, Target projected that its sales would remain flat through 2025, anticipating earnings per share between $8.80 and $9.80. This forecast contrasts with Wall Street’s anticipated figure of $9.29 per share for the year. During the latest quarter, comparable sales, accounting for stores and digital channels open for 12 months or longer, saw a 1.5% increase. This was an improvement from the 0.3% growth in the third quarter, alongside a 2% growth in the second quarter, and a 3.7% decline in the first quarter.
Chief Financial Officer Jim Lee noted that the current quarter encountered sales declines in February, partly due to severe weather across the United States. However, Lee expressed optimism that sales would rebound. “We will continue to monitor these trends and will remain appropriately cautious with our expectations for the year ahead,” stated Lee.
