Target struggles with ‘softening sales trends’ during Q1

Target’s grocery business continues to give it a much-needed boost amid “softening sales trends,” particularly in discretionary purchases, the retailer reported Wednesday in releasing its first quarter earnings.

Food and beverage sales increased in the “high-single digits” during the period, though Target’s first-quarter sales winner came in the beauty department, with growth in the mid-teens, Target told investors.

Target’s same-store sales increased just 0.7% for the quarter ended April 29, driven by traffic growth of 0.9% but offset by a 3.4% decline in comparable digital sales. Total sales were up 0.5%, with revenue totaling $25.3 billion. Operating income was $1.3 billion during the period, down 1.4% from a year ago, fueled by an increase in expenses.

Target’s operating income margin rate was 5.2% during the quarter, down from 5.3% a year ago. The retailer’s gross margin rate during Q1 was 26.3%, a boost from 25.7% in 2022.

But inventory shrink, due to theft and organized retail crime, is becoming an increasingly pressing issue, one Target says will likely cost it more than $500 million this year compared to a year ago. Shrink reduced Target’s gross margin rate by a full percentage point during the period.

Target CEO Brian Cornell called it “a worsening trend that emerged last year.”

“Violent incidents are increasing in our stores,” Cornell said, adding that Target is working on mitigation efforts, including added resources to protect employees and more-secure fixtures to contain merchandise.

Target’s first-quarter sales results prompted it to plan for a low-single digit decline in same-store sales during the second quarter. The Minneapolis-based retailer said it is maintaining its full-year guidance, which includes same-store sales anywhere from a low-single digit drop to a low-single digit boost.

During the quarter, Target opened six of roughly 20 new stores planned for 2023, ending the quarter with a total of 1,954 stores—an increase of 21 locations from a year ago.

Target’s first-quarter results are inline with broader consumer trends, as shoppers are forced to skip discretionary purchases as grocery prices remain elevated.

Non-edible consumer packaged goods unit sales fell 5% in April, according to research from Circana (formerly IRI-NPD Group) released Tuesday.

“The enduring high prices of grocery items are forcing consumers to prioritize their spending decisions and make trade-offs,” Marshal Cohen, chief retail industry adviser for Circana, said in a statement.