Target Forecasts Gloomy Second-Quarter As Consumers Turn Cautious

Target Corp on Wednesday forecast profit below Wall Street expectations and estimated a drop in sales for the second quarter, as consumers pinched by persistently higher prices shun buying non-essentials such as electronics and home goods.

Shares of the big-box retailer fell about 3% in premarket trading on Wednesday, while bigger rival Walmart 's stock was down about 1%.

Target projected adjusted profit between $1.30 and $1.70 per share, below estimates of $1.93 for the current quarter.

It forecast comparable sales to decline in the low-single digits, compared to estimates of a 0.25% rise, according to Refinitiv data.

"Right now (the American consumer is) spending more due to inflation, saving less and delaying major purchases," Chief Growth Officer Christina Hennington said in a media call.

The company also said theft and organized crime could reduce this year's profitability by more than $500 million compared to 2022.

Target has been looking to shift focus to household essentials and groceries as sticky inflation and higher interest rates prompt consumers to trade down, but its merchandise remains skewed to more discretionary products.

Still, the company maintained its 2023 annual profit expectation after beating first-quarter results. The company said it benefited from steady demand for beauty products and household essentials, as well its private-label brands.

Target's lackluster forecast comes a day after top U.S. home improvement chain Home Depot Inc (HD.N) guided a steeper-than-expected decline in annual profit, setting up a cautious run-up to retail behemoth Walmart's earnings on Thursday.

Target's first-quarter gross margin rate increased to 26.3%, compared to 25.7% a year earlier, largely from reduced freight costs and fewer clearance discounts.

Comparable sales also grew by a better-than-expected 0.7%, but digital sales posted a surprise drop.

The pressure in discretionary categories outweighed strong growth seen in its everyday essential businesses, Chief Financial Officer Michael Fiddelke said.

"We are confident that the economy and consumer will stabilize overtime and will once again benefit from growth in that (discretionary) portion."

Target stock slips 2% premarket after Q1 results.