MINNEAPOLIS — Target Corp. executives expect to blunt the “vast majority” of the cost impact from tariffs but haven’t ruled out the possibility of price increases, which chairman and chief executive officer Brian Cornell called a strategy of “last resort.”

Still, the uncertainty surrounding tariffs weighed on Target’s business and consumers as the discount retailer fell well short of Wall Street’s earnings forecast and saw both net and comparable sales drop for its fiscal 2025 first quarter.

The disappointing performance and the lack of clarity around tariffs and the overall macroeconomic picture led Target to lower its full-year earnings and sales guidance — as well as form a new “Enterprise Acceleration Office” to expedite progress on its strategic growth plan.

“In the first quarter, our team and our business faced an exceptionally challenging environment that affected our performance, with declines in both traffic and sales, most notably in our discretionary categories,” Cornell told analysts in a May 21 conference call. “On top of those ongoing challenges, we faced several additional headwinds this quarter, including five consecutive months of declining consumer confidence, uncertainty regarding the impact of potential tariffs, and the reaction to the updates we shared on Belonging (at the Bullseye, Target’s diversity strategy) in January.

“While we believe each of these factors played a role in our first-quarter performance, we can’t reliably estimate the impact of each one separately. I want to be clear that we’re not satisfied with this performance, and we’re moving with urgency to navigate through this period of volatility.”

Cornell said Target’s merchandising team has been “working tirelessly to mitigate the impact of tariffs” but noted that “the difficulty level has been incredibly high” because of “the magnitude of the rates we’re facing and a high degree of uncertainty on how these rates and impacted categories might evolve.”

“We have many levers to use in mitigating the impact of tariffs, and price is the very last resort,” he said. “Our strategy is to remain price competitive by leveraging the capabilities, longstanding relationships and the scale that set us apart for many of our retail peers. For example, we’re fortunate to have a sourcing team with decades of experience and strong partnerships with our global suppliers. As we’re engaging in contingency planning with those vendor partners, we’re moving thoughtfully and contemplating a wide range of potential scenarios. And we’re building our plans to preserve maximum flexibility while protecting our business in the face of massive potential costs.”

Half of the products sold by Target are sourced from the United States, said Rick Gomez, chief commercial officer. The company has the most control over sourcing for its private brands and, in recent years, has been working to diversify countries of production. In 2017, for example, 60% of Target’s own-brand sourcing came from China, and that has since been reduced to 30% and is slated to be less than 25% by the end of 2026, Gomez said. The company is expanding that production into new countries — in Asia and the Western Hemisphere — as well as exploring opportunities in the United States, he added.

“Looking ahead to the second quarter and beyond, a key focus will be navigating the ever-changing tariff landscape as we work to deliver on our business goals while doing what we do best, providing outstanding product at incredible prices,” Gomez said in the call. “Our teams have been hard at work to minimize tariff headwinds through multiple strategies, including negotiating with our vendor partners, re-evaluating assortment decisions, changing country of production where we are able, adjusting order timing and, where necessary, prices. We’re building these plans with a premium on flexibility, allowing our team to read and react to changing tariff impacts and consumer trends as we navigate through the uncertainty.”

In response to an analyst question, Gomez said, “Through all those strategies, we feel that we can offset the vast majority of the tariff impact.”

The challenging economic environment and weak quarterly results led Target to rein in its fiscal 2025 outlook. The retailer now expects a low-single-digit decline in full-year net sales, reported earnings per share of $8 to $10 and adjusted EPS of $7 to $9. That compares with its previous guidance of 1% net sales growth and reported and adjusted EPS of $8.80 to $9.80.

“This wider range reflects the expected impact of tariffs and heightened uncertainty regarding the economy and consumer spending,” Jim Lee, chief financial officer, said in the call.

Positive news on the tariff front could lead Target to resume share repurchases, Lee said.

“With increasing uncertainty regarding the magnitude and timing of potential tariffs, we did not repurchase any shares in April,” he said. “Recent news of moderating tariff rates has been very encouraging and may open the door for additional repurchase activity later in the year.”

In early afternoon trading on May 21, Target’s stock price was down 5.4% to $92.82 after closing at $98.12 the day before.

“Not satisfied” with Q1 results

For the first quarter ended May 3, net income rose 10% to $1.04 billion, equal to $2.28 per share on the common stock, from $942 million, or $2.03 per share, a year ago. Excluding a $593 million pretax gain from the settlement of credit-card interchange fee litigation, adjusted diluted EPS was $1.30, compared with $2.03 a year earlier, Target said. Analysts, on average, had projected adjusted EPS of $1.65.

Net sales for the quarter fell 2.8% year over year to $23.85 billion from $24.53 billion. Reflecting many consumers’ current focus on purchasing essentials, food and beverages was the only one of Target’s six core merchandising categories — also including apparel and accessories, beauty and personal care, household staples, hardlines, and home furnishings and décor — to generate net sales growth, up 0.8% to $5.9 billion.

Overall comparable sales sank 3.8%, as a 5.7% decrease in comp-store sales overcame 4.7% growth in digital comp sales. Target said its total transaction count fell 2.4%, while the average ticket shrank 1.4%.

Within its core merchandising categories, Target held or added market share in 15 of the 35 divisions for which it tracks share, with strong gains in such segments as women’s swimwear, performance, toddler, seasonal merchandise, books, fresh produce and floral, Gomez said. During the quarter, Target launched Good Little Garden, its first stand-alone floral brand.

“While we are pleased to see those positive results, our goal is to hold or grow share across the majority of our assortment,” he said. “As such, we are not satisfied with our first-quarter performance, and we are laser-focused on improving these trends over time.”

For the summer season, Target last week began rolling out more than 10,000 new products across categories, with prices starting at $1, $3 and $5 and thousands of items costing less than $20, including under the retailer’s Favorite Day and Good & Gather brands. On the food side, discounted and featured items include ground beef and burger patties, s’mores kits, cotton candy cake, gummy candies, snack mix, pretzels, whipped dairy topping, ice cream and frozen novelties, barbecue sauce and flavored sparkling water, among others.

“As weather has warmed up across the country, we are seeing momentum in categories like outdoor toys, pool accessories, and summer food and beverage items,” Gomez said.

New “office” to accelerate growth strategy

Meanwhile, Target announced the creation of the multi-year Enterprise Acceleration Office to “drive even greater speed and agility across the company” as it proceeds with a sweeping growth plan, announced in early March, to add more than $15 billion in sales by 2030.

The retailer has named chief operating officer Michael Fiddelke to oversee the new office, which aims to improve how functions work together to spur key priorities, ranging from simplifying cross-company processes to using technology and data in new ways.

“This morning, we announced the formation of an Enterprise Acceleration Office, as well as several organizational changes, to bring even more clarity and speed to how we operate and advance our strategy across the company,” Cornell told analysts. “This effort goes beyond improving efficiency, with a focus on greater adaptability, innovation, resilience and, ultimately, growth. Based on his expertise and the insights he’s gained from more than 20 years at this company, Michael (Fiddelke) is the perfect leader for this work.”

With the move, chief strategy and growth officer Christina Hennington is slated to shift to a strategic adviser role through Sept. 7, after which she will leave the company, Target said. The retailer also announced the departure of chief legal and compliance officer Amy Tu, whose role will be assumed in the near term by chief human resources officer Melissa Kremer, pending an external search for a replacement.

Also with the new office, Target said Lee will lead the company’s enterprise strategy and partnerships, while Gomez will oversee the enterprise insights team. Prat Vemana, chief information and product officer, now will report directly to Cornell and lead the Target in India global capability center.