Target cuts sales forecast on shopper pullback, tariff hit
'I want to be clear that we're not satisfied with these results,' Cornell said during a call with reporters. 'We've got to drive traffic back into our stores and visits to our site.'
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He said Target has to move with a greater sense of urgency, attributing the results to weakness in discretionary spending, declining consumer confidence, uncertainty over tariffs and shopper backlash against the company's decision to halt diversity initiatives. He listed strength in e-commerce as a bright spot.
The Minneapolis-based company has struggled to return to steady growth as consumers spend less on clothes, home goods and other non-necessities following years of rising inflation. Demand for discretionary items has yet to rebound.
While that trend has hit retailers broadly, Target has been more vulnerable than some of its peers. That's because apparel, home goods and non-consumable items make up about 65 percent of its sales, while competitors such as Walmart Inc. rely on groceries for a larger percentage of revenue. Target has also had trouble with inventory management in recent years amid fluctuations in demand.
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'We think it will be more difficult for Target in this environment given tariffs and Walmart's substantial market share gains,' said Jefferies analyst Corey Tarlowe.
In a sign that pressure to improve performance is rising, Target announced a series of management reshuffles and said its Chief Strategy and Growth Officer Christina Hennington, a Target veteran of more than 20 years and once seen as a potential successor to Cornell, will leave the company.
Chief Operating Officer Michael Fiddelke will lead a newly formed group called the 'multiyear acceleration office,' aimed at positioning Target to move faster on growth priorities. The company will also double down on offering trendy, affordable products and convenient shopping experiences, executives said on a call with analysts.
Target shares fell 7 percent in New York trading at 9:30 a.m. Through Tuesday, the company's stock was down about 27 percent compared with a 1 percent increase in the S&P 500.
The worse the economic turbulence gets, the more pressure it puts on Cornell — a CEO once seen as a retail wunderkind.
Following stints at Walmart Inc. and PepsiCo Inc., Cornell joined as the top executive of Target over a decade ago and streamlined the retailer's operations. He led the company through the pandemic and beefed up digital operations, but Target hasn't been able to generate substantive growth since then.
Target has trailed Walmart, which has been investing in low prices, sprucing up assortment and remodeling stores. It's also gained market share among wealthier shoppers that used to be Target's sweet spot.
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Target executives acknowledged that they're not hitting the mark. Sales jumps during major holidays and limited-time design collaborations help fuel growth and bring people into stores, but the company isn't seeing that same kind of momentum on a more regular basis.
'We recognize that we've got to make sure each and every day, we deliver the right products, the right assortment, the right value that brings guests into our stores and our digital sites,' Cornell said.
The big-box chain has also faced boycotts by some shoppers following a pullback from diversity initiatives earlier this year. While Target is one of many companies that have dialed back such programs following pressure from the Trump administration, the company has experienced a bigger backlash than others.
That's due to the brand's efforts in past years to promote diversity as central to its corporate identity. This ranged from partnering with Black-owned suppliers to offering a wider range of apparel sizes.
The company has excess inventory due to lower-than-expected demand, and plans to adjust it going into the second half of the year.
Tariffs represent the latest obstacle. Higher levies on imported goods are expected to raise prices of goods in the near term, resulting in a decline in consumer sentiment and cautious shoppers. Executives signaled that challenges are expected to persist in the coming months.
The company is adjusting prices in response to the volatile environment, executives said, without directly linking changes to tariffs — a departure from the company's more direct comments about the levies' effect in March.
The retailer is moving to reduce its exposure to China. It's on track to source about 25 percent of its store brands from China by the end of next year, down from 60 percent in 2017. Target is also negotiating with suppliers on prices.
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Home Depot Inc. on Tuesday also struck a more conservative tone about tariffs after Walmart last week said that price increases are coming. Those remarks drew the ire of Trump over the weekend.
Despite general weakness, consumers are still spending when they find new, trendy products at good value, said Rick Gomez, Target's chief commercial officer. The company's recent collaboration with Kate Spade was its biggest sales success in years for designer partnerships, while holidays such as Valentine's Day and Easter outperformed non-holiday days.
Target lost market share in 20 out of 35 categories during the last quarter, Gomez said. It gained or held market share in areas like essentials, produce, flowers and women's swimwear.
Target will focus on growing share in more areas this year, executives said, as it looks to offer new items and key products at a good value. The company has sharpened its focus on deals and plans to offer more than 10,000 new items this summer, with some costing as little as $1.
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