Shares of Target Corporation (NYSE: TGT) stayed red on Friday. The stock has dropped 23% over the past three months. The company faced a challenging environment in the first quarter of 2025, as it tackled new and existing headwinds, which hurt its top and bottom line performance.
The retailer does not expect these headwinds to abate in the near term, which led it to lower its outlook for the year. However, there are certain areas of growth that the company is focusing on as it makes its way through this difficult landscape.
Tough conditions hurt Q1 results
Target faced an unexpectedly difficult environment in the first quarter of 2025, which took a toll on its traffic and sales. The brunt of this pressure was borne by the discretionary categories, which have been weighed down for a while now by high inflation that has forced customers to focus more on essential categories. In addition to the existing challenges, the company faced new headwinds during the quarter from a drop in consumer confidence, tariff-related uncertainty, and negative reactions to certain changes rolled out earlier in the year.
These headwinds led to a decline in Target’s sales and profits in the first quarter. Net sales decreased 2.8% year-over-year to $23.8 billion. Comparable sales fell 3.8%, with a comparable store sales decline of 5.7%. The decline in comps was caused by a 2.4% drop in traffic and a 1.4% decrease in average ticket. Adjusted earnings per share decreased 36% to $1.30 compared to last year.
Looking ahead to the rest of the year, Target expects the pressures on its top line to continue in the near term.
Focus on value
As it navigates this volatile period, Target is particularly focusing on providing customers with value on their purchases. Consumers are mindful of their purchases and they are looking to save as much as they can on their budget. Even so, they are willing to buy discretionary items if they can find them at good quality and value.
In the first quarter, Target’s top line gained from momentum during Valentine’s Day and Easter. As part of its value proposition, for the summer season, the retailer is offering more than 10,000 new items, starting at $1. The company will continue to offer items at price ranges of $1, $3, and $5 in Bullseye’s Playground, with plans to expand this assortment to include beauty items, and snacks and beverages.
Target is also providing value to its customers through its Target Plus marketplace and its Target Circle loyalty program. In Q1, Target Plus GMV grew more than 20% and the company aims to grow GMV to $5 billion by 2030. TGT garnered good response to its Target Circle Week and saw a 36% growth in same-day delivery powered by Target Circle 360.
Some other bright spots during the quarter included a 4.7% growth in comparable digital sales and progress on inventory shrink, which has moderated from extreme levels in previous years. Target is also working on minimizing tariff headwinds through various strategies like negotiations with vendors, re-evaluating its assortment, and changing country of production.
Lowered outlook
Target anticipates headwinds from sales pressure, tariff impacts, and some additional costs to continue in the second quarter of 2025. The company lowered its guidance for the full year of 2025 and now expects to see a low-single-digit decline in sales versus its previous expectation of growth of around 1%. Adjusted EPS is now expected to be $7.00-9.00 versus the prior range of $8.80-9.80.
