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Target Sees Profit Boost on Fewer Discounts, Pride Backlash Hurts Sales

The retailer reported its second-quarter sales dropped 5 percent due to backlash against its Pride merchandise.
Target cut its full-year sales and profit expectations.
Target cut its full-year sales and profit expectations. (Shutterstock)

Target cut its full-year sales and profit expectations even as its quarterly profit exceeded Wall Street estimates on Wednesday, benefiting from fewer discounts and better-stocked store shelves.

The retailer’s second-quarter sales, however, dropped 5 percent, partly due to the fallout of a backlash against its Pride merchandise in May.

Target was forced to remove some items from transgender designer Erik Carnell’s Abprallen brand, citing an increase in customer-employee confrontations and incidents of Pride merchandise being thrown on the floor.

“As we navigate an ever-changing operating and social environment, we are applying what we learned,” chief executive officer Brian Cornell said, promising to be careful with its partnerships while “celebrating heritage moments.”

Target did not provide the exact financial impact of the backlash, saying the incident cannot be separated from the rest of the macroeconomic pressure.

Company executives said sales were much softer in June as consumer spending remained strained, but improved through July.

“We are seeing food and beverage and household essentials absorbing a larger portion of the US consumers’ wallet,” Cornell said.

Better Than Feared

Shares of the big box retailer, however, rose 6 percent in morning trading as inventories fell along with a 25 percent drop in discretionary items in its stock.

The company, which largely sells non-essential items like electronics and home decor, has been trying to balance its merchandise by adding more daily-use products as consumers limit their spending to necessary items amid rising prices.

“If you didn’t have that political snafu, I guess alongside the inventory problem, the stock would be trading much, much higher,” Dave Wagner, equity analyst and portfolio manager at Aptus Capital Advisors.

For the second half of the year, Target executives said, the company was taking a “cautious approach” even though consumer confidence was beginning to recover.

Target now expects annual comparable sales to decline in the mid-single digit range compared to its prior forecast of a low-single-digit decline to a low-single-digit increase.

It expects 2023 adjusted profit per share between $7 to $8, compared with the prior range of $7.75 to $8.75.

On an adjusted basis, Target earned $1.80 per share in the quarter ended July 29, beating expectations of $1.39.

Bigger rival Walmart is set to report earnings on Thursday.

By Ananya Mariam Rajesh

Learn more:

Target Sheds $14 Billion in Value on Retail Uncertainty, LGBTQ Backlash

Target Corp. has erased almost $14 billion in market value since it reported earnings last month, and some on Wall Street see more pain ahead for the retailer.

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