A customer shops at a Target store in Miami, Florida, on May 20, 2024.
Joe Rydell | Getty Images
Goal On Wednesday, it reported a year-over-year sales decline and beat Wall Street earnings estimates, as consumers tired of high prices bought fewer discretionary items and groceries.
The Minneapolis-based discount company's revenue was in line with expectations.
On a call with reporters, CEO Brian Cornell said the company's results reflect “continued weak trends in discretionary categories.”
He said the company wants to make sure it delivers value to customers and communicates that in a clear way, through steps like the relaunched loyalty program. Target also announced Monday that it would lower prices on thousands of everyday items, including milk, bread, paper towels and diapers.
Target stuck to its previous full-year forecast, saying it expects comparable sales to range flat to 2% and that adjusted earnings per share will be $8.60 to $9.60. Company leaders said the retailer is on track to return to sales growth in the second quarter.
The company's shares fell about 8% in pre-market trading.
Here's what Target reported for its fiscal first quarter ended May 4 compared to what Wall Street expected, based on a survey of analysts conducted by LSEG:
Earnings per share: $2.03 vs. $2.06 expected Revenue: $24.53 billion vs. $24.52 billion expected
This was the first time since November 2022 that Target missed earnings expectations.
Target's net income for the period fell less than 1% to $942 million, or $2.03 per share, from $950 million, or $2.05 per share in the same quarter last year.
Total revenue was down about 3% from $25.32 billion a year earlier.
Like other retailers, Target has tried to appeal to consumers who don't spend freely on clothing, home goods or other discretionary items. The chic, budget retailer has been particularly hurt by this dynamic because it gets fewer sales from food than rival Walmart, which derives about 60% of its U.S. sales from grocery stores. This compares to about 20% at Target.
Inflation slowed slightly in April, but the CPI remained 3.4% higher year-on-year. The key metric measures the cost of goods and services at the cash register.
Target acknowledged this challenge with price cuts this week.
The company also competes with other discounters, including Walmart, Aldi and Lidl, which chase bargain-hunting shoppers.
For example, Walmart has gained market share from higher-income shoppers and recently introduced a premium food brand in which most items are priced under $5. The company's chief financial officer, John David Rennie, also said last week that customers are turning to grocery aisles for cheaper meals due to rising fast food prices.
Target sales challenges
In Target's first quarter, customer traffic, which includes online and stores, fell 1.9%. The average amount customers spent on those visits also decreased by 1.9%.
Digital sales grew 1.4%. This was the first increase in digital sales in more than a year.
Comparable sales, also called same-store sales, fell 3.7%, as shoppers bought beauty products but less in other discretionary categories such as apparel and home. This decline was in line with what analysts expected, according to StreetAccount.
Discretionary merchandise wasn't the only part of the store under pressure. Sales in the frequency, food and beverage, beauty and household supplies categories were down by low single digits, chief growth officer Christina Hennington said on a call with reporters.
However, Hennington said Target is seeing some encouraging trends compared to recent quarters. Apparel sales improved about 4 percentage points from the fiscal fourth quarter, as customers purchased clothing for the spring.
Target's limited-time collection with Diane Von Furstenberg drove millions of unique visits to the retailer's website each day of the launch week and lifted customers' basket sizes by about 15% on average, she said.
Other unique items also led to increased spending, she said. It included a partnership with tennis and lifestyle brand Prince to sell pickleball gear and Taylor Swift's latest album, which Target leveraged through in-store events and photo shoots.
Target shares closed Tuesday at $155.78, bringing its market value to $72.07 billion. As of Tuesday's close, Target shares were up about 9% so far this year, lagging the S&P 500's gain of about 12%.
— CNBC's Robert Home contributed to this report.
