Cautious consumers made for muted Q4 2024 earnings, Target executives said during this week’s earnings call. And the first quarter of 2025 isn’t looking that great, either.
Target beat Wall Street expectations for its Q4 earnings and revenue, but in most other respects the numbers were a disappointment. Its net income of $1.1 billion for the quarter was down from $1.38 billion in Q4 2023. Its sales were also down 3% year over year. The retailer only anticipates sales growing 1% this year, below analyst estimates of 2.6%, and for annual same-store sales to remain flat.
Like peers Walmart and Best Buy, Target sees consumers holding back. Declining consumer confidence is dampening discretionary spending, CFO Jim Lee said. More than two-thirds of what Target sells is discretionary, according to Reuters. The company did not discuss the impact of ongoing backlash in the wake of its decision to withdraw from DEI commitments.
Tariff uncertainty leads to caution: “Meaningful year over year profit pressure” from tariffs could depress sales in Q1, Target said in its earnings report. Tariffs on Mexican imports could raise prices on groceries like bananas, avocados, and strawberries, CEO Brian Cornell said. “If there’s a 25% tariff, those prices will go up…certainly over the next week,” he told CNBC.
The uncertainty around tariffs has led to a wait-and-see approach, Cornell said, according to AP. “I think things are unfolding so quickly…We will watch this carefully and understand, are these long-term tariffs? Is this a short-term action?...We don’t want to overreact right now to one day and one headline.”
Remarkably, the retailer announced it would discontinue its decades-old practice of giving quarterly guidance; Lee cited “elevated volatility” as the reason.
But Target has been moving away from a reliance on China in recent years, which may help it weather some of the new tariffs. In 2017, it sourced 60% of its store-brand items from China, the Associated Press reported. Now, it only gets 30% of those products from China, and plans to reduce that percentage to 25% by the end of next year, four years sooner than planned. It’s buying more goods from Honduras and Guatemala instead, EVP and CCO Rick Gomez said in a call with investors, and is contemplating using more US suppliers.
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