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Target said a customer backlash in response to its Pride month merchandise cut into sales during its latest quarter, compounding its struggles with cautious consumers and ending a six-year streak of revenue growth for the retailer.
The Minneapolis-based company said it expected sales to decline in the current quarter and lowered its earnings outlook for the year. But investors welcomed its better than expected profit and improved margins and inventory levels, pushing the retailer’s shares about 5 per cent higher in morning trading on Wednesday.
Target’s rollout this year of its Pride collection in the US collided with a culture war backlash over gay and transgender issues that also put companies including Walt Disney and brewer Anheuser-Busch InBev in the sights of conservative commentators and customers.
Brian Cornell, Target’s chief executive, said employees faced harassment and threats this year from customers angry with the celebratory goods. The retailer, which has sold Pride merchandise for about a decade, then pulled some of the items.
Chief financial officer Michael Fiddelke told analysts during a call that the “traffic and top line trends were affected by the reaction to our Pride assortment”.
Target’s comparable sales, a closely-followed industry metric, were down 5.4 per cent in the three months to July 29 due to a 4.8 per cent decline in traffic.
Total revenue fell more than analysts expected to $24.8bn in the quarter, down from $26.1bn during the same period of 2022. Target’s most recent year-over-year revenue decline was the quarter ended April 2017.
Despite the declines Target’s $835mn net income soared past Wall Street forecasts, its operating income margin jumped to 4.8 per cent and inventory levels were down 17 per cent from a year ago.
Executives said elevated inflation levels meant shoppers remained cautious, adding that some US consumers have begun to factor in the need to start repaying student loans from October after the Supreme Court threw out President Joe Biden’s student debt relief scheme.
Owing to the softer-than-expected trends, Target now expects comparable sales “in a wide range around a mid-single digit decline for the remainder of the year”, having previously forecast a low-single digit decline to low-single digit increase. It lowered full-year expectations for earnings to a range of $7 to $8 a share.
Cornell said Target would “continue to support” Pride month in the future, but suggested a need to hold broader appeal to consumers. Chief growth officer Christina Hennington said this year’s customer reaction was “a signal for us to pause, adapt and learn so that our future approach to these moments balances celebration, inclusivity and broad-based appeal”.