New York (CNN) — Target was already facing a very public revolt from some of its most loyal customers. Now it’s warning about tariffs.
The company said Wednesday that sales fell last quarter, driven in part by customer backlash to Target’s reversal on diversity, equity and inclusion (DEI) programs. Target also cut its guidance as President Donald Trump’s tariffs push up costs for the company.
Target’s sales at stores open for at least a year tumbled 3.8% last quarter. Fewer customers visited Target and spent less when they shopped. Target also cut its financial outlook, a sign Target’s problems won’t go away quickly. The company expects sales to decline by low single-digits this year.
Target’s stock (TGT) dropped 4% during pre-market trading Wednesday. Target’s stock has declined 37% over the past year.
“Target is struggling after strategic missteps on DEI and faces significant headwinds,” Emarketer senior analyst Sky Canaves said in a note to clients.
Target CEO Brian Cornell acknowledged in a recent email to staff that it has been “a tough few months” between the retail economy “headlines, social media and conversations that may have left you wondering,” the Minnesota Star Tribune reported. (Target confirmed the email to CNN.)
Cornell said Target’s culture and commitment to staff has not changed.
“I recognize that silence from us has created uncertainty, so I want to be very clear: We are still the Target you know and believe in,” Cornell said.
The company announced Wednesday that it established a multi-year “Enterprise Acceleration Office” to speed up growth plans, and it reshuffled its executive team.
DEI rollback
Boycotts over Target’s DEI reversal hurt Target’s business.
On January 24, days into Donald Trump’s presidency, Target announced it was eliminating hiring goals for minority employees, ending an executive committee focused on racial justice and making other changes to its diversity initiatives. Target said it had a new strategy called “Belonging at the Bullseye” and the company remained committed to “creating a sense of belonging for our team, guests and communities.” Target also stressed the need for “staying in step with the evolving external landscape.”
But the decision angered supporters of diversity and inclusion policies, who felt blindsided by Target. Target had been a champion of diversity initiatives and LGBTQ rights. Customers online protested Target’s decision and Anne and Lucy Dayton, the daughters of one of Target’s co-founders, called the company’s actions “a betrayal.”
Target faced a 40-day consumer boycott during Lent led by Rev. Jamal Bryant, a prominent Atlanta-area megachurch pastor, over its DEI rollback. Protestors picketed outside Target headquarters in Minneapolis and other Black leaders such as Rev. Al Sharpton supported boycott efforts.
Target came under more pressure than other companies that rolled back DEI policies because Target had gone further in its DEI efforts, and it has a more progressive base of customers than those competitors.
Target was a leading advocate for DEI programs in the business world in the years after George Floyd was murdered by police in the company’s home city of Minneapolis in 2020. Target also spent years building a public reputation as a progressive employer on LGBTQ issues.
Tariff hit
Tariffs and a consumer slowdown put even more pressure on Target.
The chain stocks more nonessential merchandise compared to competitors such as Walmart (WMT) and Costco (COST). More than half of Target’s merchandise is discretionary and is at risk as consumers reign in spending.
Around 50% of Target’s products are also imported from overseas, including an estimated 25% from China, leaving Target in a “challenging position,” Steven Shemesh, an analyst at RBC Capital Markets, said in a note Wednesday.
Tariffs will force Target to either absorb added costs, hurting its profit, or raise prices on consumers.
Target CEO Cornell said in an interview with CNBC in March that Trump’s tariffs on Mexico may force the company to raise prices on fruits and vegetables. Although Trump has since paused many tariffs on Mexico, some have remained in place.
Home Depot said Tuesday that it plans to keep most of its prices stable, despite Trump’s tariffs driving costs up. But tariffs may cause Home Depot to increase prices on select items and eliminate some product lines entirely.
Walmart said last week that Trump’s tariffs are “too high” and it will raise prices on some items, prompting an angry response from Trump.
“Walmart should STOP trying to blame Tariffs as the reason for raising prices throughout the chain,” Trump said over the weekend. “Between Walmart and China they should, as is said, “EAT THE TARIFFS,” and not charge valued customers ANYTHING. I’ll be watching, and so will your customers!!!”