Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Target has warned that Donald Trump’s tariffs could cut into profits as it grapples with consumer fears over the state of the US economy and anger over its recent pullback from diversity goals.
The big-box US retail chain said it expected “meaningful year-over-year profit pressure” in the first quarter that began on February 2, blaming a handful of factors including “tariff uncertainty” and a decline in net sales last month, as it reported fourth-quarter results on Tuesday.
Anxieties have been rising across multiple industries as the US president increases duties on goods from China, Canada and Mexico. The largest US retail federation this week raised concerns that Trump’s tariffs and planned immigration curbs could be a drag on the economy.
Target, with almost 2,000 stores, is vulnerable to tariffs as more than three quarters of its sales come from general merchandise such as apparel, electronics and home decor, much of it imported.
The company forecast comparable sales growth would be “around flat” in 2025, which would mark a third straight year of stagnant or declining sales. Comparable sales rose 0.1 per cent in 2024, just above Wall Street’s expectations.
Fourth-quarter net profit came in at $1.1bn — near the high end of the company’s guidance and beating a Visible Alpha-compiled consensus of $1bn — thanks in part to sales of toys, electronics and apparel. Target last month reported stronger than expected traffic during the holiday season.
But some consumers and advocacy groups have more recently called for boycotting Target after the company ended diversity, equity and inclusion initiatives. Surveys of US consumer sentiment also deteriorated in February, in part reflecting worries over the effects of tariffs.
Target’s shares have declined 20 per cent in the past year, compared with a 17 per cent rise in the S&P 500 consumer staples index, as inflation-strained consumers spend less on discretionary goods.
The retail chain has also encountered a tougher challenge from rivals such as Walmart, which is making inroads with the higher-income shoppers who traditionally visit Target.
Footfall to Target stores slowed throughout February, outpacing declines at Walmart, according to Placer.ai, which aggregates location data from consumers’ mobile phones.
“During February, we saw record performance around Valentine’s Day. However, our top-line performance for the month was soft, as uncharacteristically cold weather across the US affected apparel sales, and declining consumer confidence impacted our discretionary assortment overall,” said Jim Lee, Target’s chief financial officer.
For the fourth quarter, Target reported a 1.5 per cent rise in comparable sales, matching a forecast that the company updated in January.
The increase was driven by online shopping. Sales made inside stores open for at least a year fell 0.5 per cent year on year, while digital sales grew 8.7 per cent.
The company’s net sales totalled $30.9bn, 3.1 per cent less than in the fourth quarter of 2023, which was one week longer under the retail industry calendar. Net profit dropped 20 per cent in a decline that was also exaggerated by the extra week.
For the full year, Target reported an operating profit margin of 5.2 per cent, down from 5.3 per cent in 2023 and below management’s goal of 6 per cent. The company forecast a “modest increase” in its operating margin this year.
