Target's Q1 sales fell sharply by 2.8%, comparable sales decreased by 3.8%, and the company lowered its annual forecast | Financial Report Insights

American retail giant Target's sales plummeted 2.8% in the first quarter, with comparable sales down 3.8%. Amid concerns over tariffs and the economic outlook, the company lowered its annual forecast, expecting low single-digit declines in sales for fiscal year 2025, compared to a previous forecast of 1% growth in March.

On the 21st, Target announced its Q1 financial report:

• Target's first-quarter sales fell 2.8% year-on-year to $23.85 billion, significantly below Wall Street's expectation of $24.23 billion and lower than $24.53 billion in the same period last year.
• Comparable store sales decreased by 3.8%, including a 5.7% decline in physical store sales, while online sales grew by 4.7%.
• GAAP earnings per share were $2.27, with adjusted EPS at $1.30 (excluding credit card lawsuit settlement gains), a substantial decline of 35.9% from $2.03 in the same period last year.
• The company's gross margin for the first quarter was 28.2%, down from 28.8% in the same period last year.

On Wednesday, pre-market trading saw Target's stock price drop by 3%. Year-to-date, the company's stock price has fallen by 28%.

Sales Under Continued Pressure, Company Lowers Annual Outlook

Consumers are tightening their spending. Target's financial report shows a 2.4% decrease in transaction volume in the first quarter, with average spending down 1.4%.

Among the 35 product categories tracked by Target, including non-essentials and essentials, the company only maintained or increased market share in 15 categories. The company noted some market share growth in areas such as women's swimwear, infant clothing, and activewear. Unlike Walmart, Target's business structure relies more on non-essentials like clothing and accessories, with groceries accounting for less than a quarter of its sales. This puts Target in a more disadvantageous position when facing tariff impacts.

Target significantly lowered its annual sales forecast on Wednesday, now expecting low single-digit declines in sales for fiscal year 2025, compared to a previous forecast of 1% growth in March. The company also expects annual earnings per share (excluding gains from this year's legal settlements) to be between $7 and $9, while analysts expect earnings per share of $8.34 and sales of $106.7 billion.

Notably, Target acknowledged in the latest quarter that consumer boycott activities have harmed its performance. In January, the company scaled back several diversity, equity, and inclusion (DEI) initiatives, including programs to support the career development of Black employees, following criticism from conservative activists

Strong Performance in Digital Business, but Gross Margin Under Pressure

Against the backdrop of overall weak sales, Target's digital channels showed resilience, with comparable sales growth of 4.7%.

In particular, same-day delivery services supported by the Target Circle 360 membership program achieved a strong growth of 36%. Digital sales now account for 19.8% of total sales, an increase of 1.5 percentage points compared to the same period last year.

The company's gross margin for the first quarter was 28.2%, down from 28.8% in the same period last year. This primarily reflects higher discount rates due to increased promotional activities and rising fulfillment and supply chain costs associated with the higher proportion of digital sales. However, a reduction in inventory helped partially offset these pressures.

Establishing an "Acceleration Office," Vowing to Return to Growth Track

"I want to be clear," said Target CEO Brian Cornell during the conference call:

"We are not satisfied with these results, so we are taking urgent action to navigate through this turbulent period... We must attract customers back to our stores or visit our website."

To address the challenges, Target is establishing a new office, led by Chief Operating Officer Michael Fiddelke, focused on making faster decisions to accelerate sales growth. Current Chief Strategy and Growth Officer Christina Hennington will transition to a strategic advisor role.

At the same time, the company is intensifying efforts to attract customers concerned about the economy and inflation, launching 10,000 new products starting at $1, with most priced under $20