MW Tariff uncertainty, DEI backlash hurt Target's results. CEO says price increases are 'the very last resort.'

By James Rogers

Target said that reaction to the rollback of its diversity, equity, and inclusion plans was a headwind in the first quarter

Target Corp. says that it faced a highly challenging retail environment in the first quarter, with the discount retail chain missing earnings expectations and cutting its full-year profit outlook.

Speaking during the conference call to discuss the results, Target (TGT) Chief Executive Brian Cornell said that the company faced an "exceptionally challenging environment" in the quarter, with declines in both traffic and sales, most notably in discretionary categories, according to a FactSet transcript.

Cornell cited headwinds that include five consecutive months of declining consumer confidence, reaction to the company's rollback of its diversity, equity and inclusion plans in January, and uncertainty regarding the potential impact of tariffs.

The CEO described the difficulty level around tariffs as "incredibly high," given the magnitude of the rates that Target is facing and uncertainty about how these rates and impacted categories might evolve. "We have many levers to use in mitigating the impact of tariffs and price is the very last resort," Cornell added.

The stock dropped 5.3% in afternoon trading, enough to make it the worst performer in the Consumer Staples Select Sector SPDR ETF XLP.

Rick Gomez, Target's chief commercial officer, said the company was working to offset most of the tariffs, by diversifying the countries it sources its products.

Back in 2017, 60% of its own brands were coming from China.

"We brought that down to 30%, and we are well on our way to be less than 25% by the end of next year," Gomez said. "We are expanding into new countries, Asia as well as the Western Hemisphere, but I think it's important to note that we're also exploring opportunities here in the U.S."

Currently, he said half of what Target sells comes from the U.S.

Additionally, the company is evolving its assortment. Gomez noted that Target is keeping front-store, seasonal, low-priced items at $1, $3 and $5. He also pointed to Target's partnering efforts and said that it has brought in some new seasonal food and beverage items.

In a statement, Target said it saw softer-than-expected sales and profit pressures in the first quarter, but saw strong surges in traffic and sales around Valentine's Day and Easter.

The company said it aims to improve traffic in the second quarter. It established an "acceleration" office and implemented some leadership changes to improve efficiency and speed up its growth plan. The acceleration office is led by Chief Operating Officer Michael Fiddelke.

For the quarter to May 3, adjusted earnings per share dropped to $1.30 from $2.03 a year ago, and missed the average analyst EPS estimate compiled by FactSet of $1.61.

Net sales declined 2.8% to $23.85 billion, below the FactSet consensus of $24.23 billion, as comparable sales decreased 3.8% to miss expectations of a 2% decline.

However, digital comparable sales grew 4.7%, which the company attributed to its Target Circle 360 same-day delivery service and its Drive Up service, where items are brought to a customer's vehicle.

For fiscal 2025, the company cut its guidance range for adjusted EPS to between $7.00 and $9.00 from between $8.80 and $9.80.

The results were in contrast to those of rival Walmart Inc. $(WMT)$, which beat profit and comparable sales expectations while maintaining its full-year outlook.

Earlier this week, home-improvement retailer Home Depot Inc. $(HD)$ said that it doesn't plan to raise prices because of tariffs, but last week, retail giant Walmart said that tariffs will push retail prices higher, angering President Donald Trump.

"[Target's] 1Q results weren't great," wrote Jefferies analyst Corey Tarlowe, in a note released Monday. "We think it will be more difficult for Target in this environment given tariffs and Walmart's substantial market share gains."

With regard to the rollback of Target's DEI efforts, Cornell cited "the reaction to the updates" the company shared on "belonging" in January as a headwind. The move prompted some activists to urge shoppers to boycott the retail giant.

A host of companies have rolled back their DEI initiatives, including, earlier this year, Facebook and Instagram parent Meta Platforms Inc. $(META)$.

Last year several companies, including Ford Motor Co. $(F)$, Lowe's Cos. $(LOW)$, and Walmart also outlined plans to adjust their diversity and inclusion efforts. Tractor Supply Co. $(TSCO)$, Harley-Davidson Inc. $(HOG)$, and Molson Coors Beverage Co. $(TAP)$ have also pulled back from their DEI efforts, while, in January, McDonald's Corp. $(MCD)$ said it was "retiring setting aspirational goals" and renamed its diversity team the Global Inclusion Team.

Sarah Kate Ellis, president and CEO of LGBTQ advocacy group GLAAD, said that she was not surprised by the consumer reaction to Target's DEI move.

"With the LGBTQ community wielding $1.4 trillion in spending power, and the fastest growing consumer segments being Black, Latine, and younger consumers, it's no surprise that Target's bottom line is down," she said, in a statement. "Other companies must take note: Prices and value are one thing, but to grow your business, you need to look at your values."

Target has not responded to a request for comment on this story.

A study released last week by NerdWallet said that 73% of Americans say it's important for them to buy from companies that align with their values.

Target is no stranger to the cultural and political spotlight, as evidenced in 2023 when it faced an anti-LGBTQ+ backlash against its Pride collection.

Target shares have fallen 31.3% in 2025, compared with at 6.9% rally in Walmart's stock and the benchmark S&P 500 index's SPX gain of 0.1%.

-James Rogers

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May 21, 2025 13:26 ET (17:26 GMT)

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