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Target warned that Donald Trump’s tariffs could cut profits as it struggles to cope with consumer concerns about the U.S. economy and anger at its recent retreat from its diversity targets.
The large U.S. retail chain said it expects meaningful “year-on-year profit pressure” in the first quarter that began on February 2, blamed on a few factors last month, including “tax uncertainty” and a decline in net sales as it reported fourth-quarter results on Tuesday.
Anxiety has been increasing as the U.S. president increases tariffs on goods from China, Canada and Mexico. This week, the largest retail federation in the United States has raised concerns that Trump’s tariffs and planned immigration curbs could hamper the economy.
With nearly 2,000 stores, Target is vulnerable to tariffs because more than three-quarters of its sales come from general goods such as clothing, electronics and home decoration, most of which are imported.
The company predicts comparable sales growth will “surround Flat” in 2025, which will be the third year of continuous stagnation or sales decline. In 2024, comparable sales rose 0.1%, higher than Wall Street expectations.
Net profit in the fourth quarter was $1.1 billion – near the high end of the company’s guidance and beat the visible Alpha compilation consensus for $1 billion – thanks in part to sales of toys, electronics and clothing. Target reported last month that traffic volumes during the holidays were higher than expected.
But some consumers and advocacy groups have recently called for boycotting goals after companies ended their diversity, equity and inclusion programs. Surveys on U.S. consumer sentiment also worsened in February, reflecting concerns about the impact of tariffs.
Target’s stock has fallen 20% over the past year, while S&P 500’s shares have increased by 17% as consumers spend less on spending.
The retail chain also faces challenges from competitors such as Walmart, which is blending with high-income shoppers who have traditionally visited Target.
According to Placer.ai, the pace of targeting stores slowed down throughout February, surpassing Wal-Mart’s decline.
“In February, we saw a record performance on Valentine’s Day. However, our top-notch performance this month was very soft because clothing sales throughout the United States were unclear and the decline in consumer confidence affected our discretion classification,” said Jim Lee, Target’s chief financial officer.
In the fourth quarter, Target reported comparable sales rose 1.5%, matching the company’s forecast updated in January.
Growth is driven by online shopping. Sales year after opening in the store for at least one year fell 0.5%, while digital sales rose 8.7%.
The company’s net sales totaled $30.9 billion, 3.1% less than the fourth quarter of 2023, and that sales are a week longer under the retail industry calendar. Net profit fell by 20%, which was also exaggerated by the additional week.
Over the entire year, Target reported operating margins of 5.2%, down from 5.3% in 2023 and 6% below management’s target. The company predicts that operating margins will increase moderately this year.
