Target, one of the largest retailers in the US, reported a 5.4% drop in comparable sales in the second quarter of 2023, marking its first quarterly sales decline in six years. The company also lowered its full-year outlook, citing inflationary pressures, theft, and changing consumer preferences.
Total revenue fell 4.9% from a year ago to $24.8 billion, missing analysts’ expectations of $25.2 billion. Net income decreased 7.8% to $1.8 billion, or $3.65 per share, beating estimates of $3.49 per share.
Target CEO Brian Cornell said that the company faced a challenging environment in the second quarter, as customers shifted their spending away from discretionary products and toward services like travel, entertainment, and dining out.
“Consumers are choosing to increase spending on services like leisure travel, entertainment and food away from home, putting near-term pressure on discretionary products,” he said during a conference call with investors.
Cornell also noted that the company was impacted by higher costs for labor, transportation, and commodities, as well as increased theft at its stores.
Target faces conservative backlash over Pride Month merchandise
One of the factors that contributed to Target’s sales decline was the negative reaction to its Pride Month merchandise, which featured LGBTQ+ themed clothing and accessories.
Target has been selling Pride Month merchandise for more than a decade, but this year it faced a backlash from conservative groups and social media users who accused the company of promoting an agenda that goes against their values and beliefs.
Some of the items that sparked controversy included a “tuck-friendly” swimsuit that was falsely claimed to be sold in kids’ sizes, and a shirt that said “Satan respects pronouns” that was never sold by Target but was associated with one of its partners.
The company said that it received threats and aggressive actions from some customers who were unhappy with its Pride Month display, and decided to remove some items and move the display to the back of the stores.
Target’s chief growth officer Christina Hennington said that the company’s decision was not meant to appease anyone, but to protect its employees and customers.
“Our goal is for our assortment to resonate broadly and deliver on the Target brand promise,” she said. “In this case, the reaction is a signal for us to pause, adapt and learn so that our future approach to these moments balances celebration, inclusivity and broad-based appeal.”
Target plans to invest in growth and innovation
Despite the disappointing results, Target said that it remains confident in its long-term strategy and competitive advantages. The company said that it plans to invest $4 billion annually in its stores, supply chain, technology, and workforce.
Target also highlighted some of its growth initiatives, such as expanding its assortment of owned and exclusive brands, launching new loyalty programs and partnerships, and enhancing its digital capabilities and fulfillment options.
The company said that it expects to see improvement in its sales trends in the second half of the year, as it prepares for the holiday season and leverages its strength in categories like home, beauty, apparel, and essentials.
Target also said that it will continue to support its LGBTQ+ community and celebrate diversity and inclusion in its business.
“We’re proud of our long-standing history of creating an inclusive environment for our team members and guests – one that embraces all people’s individuality,” Cornell said.
