Target sees near-term profit squeeze from tariffs, cautious spending

By Siddharth Cavale and Juveria Tabassum

(Reuters) -Target on Tuesday forecast full-year comparable sales below estimates, and said uncertainty around tariffs as well as consumer spending would weigh on first-quarter profits.

The Minneapolis-based retailer joined retail bellwether Walmart in raising caution about its expectations for the year as sticky inflation and tariffs on imports proposed and implemented by President Donald Trump temper demand, particularly for the non-essential categories like home furnishings and electronics that makes up more than two-thirds of Target's sales.

Target expects comparable sales to be about flat in the year through January 2026, compared with analysts' average estimate of 1.86% growth, according to data compiled by LSEG. It expects earnings of $8.80 to $9.80 per share, largely in-line with Wall Street's $9.31 estimate. Target said the annual forecast does not consider any impact from tariffs.

Consumers, however, continue to be stressed and at least some of the noise surrounding the levies hit sales in February, a Target spokesperson said.

"The company expects to see meaningful year-over-year profit pressure in its first quarter," it said, attributing the impact to tariff uncertainty, as well as weak demand for apparel and other discretionary products during February.

"We will continue to monitor these trends and will remain appropriately cautious with our expectations for the year ahead," Chief Financial Officer Jim Lee said in a statement.

The disappointing outlook may reflect the mood of shoppers who in January pulled back spending far more than expected and showed that they are much more worried about the impact of tariffs on their wallets.

Target, in particular, has also faced more backlash and boycotts by its patrons for ending its diversity and inclusion (DEI) initiatives in January, with some noting the company's reputation for inclusiveness had helped it attract a younger, more diverse consumer base.

Foot traffic at Target stores dropped 6.1% on average from the week of January 27 through February 23, according to data from Placer.ai. Target did not mention any impact of ending its DEI initiatives in its outlook.

For the holiday quarter, Target reported a 1.5% rise in comparable sales, topping estimates of a 1.3% increase, according to data compiled by LSEG.

Earnings fell 19.3% to $2.41 per share, but beat estimates of $2.27. Gross and operating margins declined due to higher promotions and delivery costs.

Target's shares flitted between gains and losses in premarket trading on Tuesday. They were last up 1%.