Target Corp. on Wednesday reported a second-quarter sales drop, dragged down by a negative reaction by some customers due to its Pride merchandise and shoppers’ inflation worries.
The Minneapolis retailer expects high interest rates, which makes credit cards more expensive to use, and higher prices on food to continue to put a strain on customers, and on Wednesday, the chain cut its profit outlook for the year. It also expects sales will decline for the remainder of the year.
Target’s comparable sales slipped 5.4 percent, according to its earnings report, while the $24.8 billion in total revenue was some 4.9 percent lower than last year.
In lowering its forecast, Target also cited the end of the student loan moratorium, which had provided one-time college students a little more financial breathing room. Profit came in above expectations, however, as Target brought inventories closer in line with cautionary spending on discretionary items by customers.
Several months ago, Target was criticized on social media for its LGBT support and for its Pride-related merchandise. Some conservative influencers noted that the company was selling LGBT-themed items for children, sparking calls for a Bud Light-style boycott before the company later confirmed in a statement that it would be pulling some of those items.
Company executives told reporters this week that they could not reveal the extent the negative reaction had on its business, but once it made the changes, those incidents subsided. Overall sales improved in July from June, they said.
Target CEO Brian Cornell said that the company has learned from the backlash and said it will be more thoughtful in merchandise offerings. However, Mr. Cornell suggested that the company would still engage in Pride-related sales.
“We’ll continue to celebrate Pride and other heritage moments, which are just one part of our commitment to support a diverse teams and guests, ” Mr. Cornell told reporters. “However, as we navigate an ever changing operating and social environment, we’re applying what we’ve learned to ensure we’re staying close to our guests and their expectations of Target.”
Target’s foot traffic dropped some 4.8 percent in the last quarter, which is “likely a function of a mix that skews too discretionary, as well as the Pride merchandise issues,” wrote Michael Baker, an analyst at DA Davidson, in a note
Company executives also said that sales were much softer in June due to strained consumer spending. However, that improved in July. “We are seeing food and beverage and household essentials absorbing a larger portion of the U.S. consumer’s wallet,” Mr. Cornell said.
In late May, Target confirmed it removed some controversial LGBT-related products from its U.S. stores and website after a growing number of people called for a boycott of the firm.
“Since introducing this year’s collection, we’ve experienced threats impacting our team members’ sense of safety and well-being while at work,” a statement from Target said at the time. “Given these volatile circumstances, we are making adjustments to our plans, including removing items that have been at the center of the most significant confrontational behavior.”
The company had been selling onesies for infants with pro-LGBT slogans and designs as part of its Pride collection. The firm also was offering a range of LGBT-related books targeting children, including “Bye Bye, Binary” and “What Are Your Words?”
However, what appeared to draw the most ire was a so-called “tuck-friendly” swimsuit that was being sold in some stores. Target later confirmed that the item wasn’t being sold for children, only adults.
In the meantime, the firm has faced political pressure. A coalition of about 15 Democrat attorneys general sent a letter to Mr. Cornell in June, claiming the company’s decision to pull the items is a setback for the “march of social progress.”
“While we understand the basis for this action, we are also concerned it sends a message that those who engage in hateful and disruptive conduct can cause even large corporations to succumb to their bullying, and that they have the power to determine when LGBTQIA+ consumers will feel comfortable in Target stores—or anywhere in society,” the group wrote in a letter.
Other Numbers
Target earned $835 million, or $1.80 per share, in the quarter that ended July 29, according to the earnings report. That compares with $183 million, or $0.39 per share, in the year-ago period.Sales fell nearly 5 percent, to $24.77 billion, as shoppers focused more on groceries than discretionary items. Business in the quarter was also hurt because results were being compared with heavy discounting in the year-ago period that was meant to clear unwanted inventory as shoppers pulled back.
Analysts had been expecting profits of $1.43 per share on sales of $25.18 billion, according to FactSet. Inventory at the end of the second quarter was 17 percent lower than last year, reflecting a 25 percent reduction in discretionary categories like fashion and home furnishings.
