Target Beats Earnings Expectations But Tariffs Bring Higher Prices

Target reported better-than-expected fourth-quarter earnings on Tuesday, bolstered by strong holiday season spending, but the company noted the implementation of President Donald Trump’s tariffs could result in a “meaningful” dip in its upcoming first-quarter earnings.

“For anyone in our space today, we’re looking for certainty, and, you know, hopefully over the next few weeks, we have a better understanding of how things are going to move forward, and we’ve got to react accordingly,” CEO Brian Cornell said in an interview with CNBC.

Cornell added that half of the goods Target (TGT) sells come from the U.S. and diversifying its supply chain over the last few years has lowered imports from China to 30 percent of all imports, down from 60 percent, with plans to reach 25 percent.

Target reported adjusted earnings of $2.41 per share for the quarter, down from $2.98 in Q4 2023 but well ahead of Wall Street’s expectations across the board. Overall sales fell to $30.92 billion, down from $31.92 billion a year earlier, an approximately 3 percent decline. Target stock was down 3.62 percent today.

Target warns higher prices are ahead

Target’s reported earnings arrived on the same day that the Trump administration’s 25 percent tariffs on Mexico and Canada and an additional 10 percent duty tax on China went into effect. Consumers and investors alike have begun bracing themselves for price increases, and consumer confidence marked its steepest one-month decline in February since August 2021, according to The Conference Board, a nonprofit think tank.

Despite the diversification of its supply chain, tariffs could force Target to raise prices on fresh produce from Mexico — such as avocados, strawberries and bananas — as soon as this week.

“Those are categories where we’ll try to protect pricing, but the consumer will likely see price increases over the next couple of days,” Cornell told CNBC.

Other major retailers have warned about price increases, and 221 companies in the S&P 500 mentioned tariffs on their recent earnings calls, according to data from FactSet.

For the rest of the year, Target expects net sales to grow at about 1 percent year-over-year, which strikes a cautious tone in guidance compared to what analysts had predicted. For now, consumers can expect to see rising prices as big retailers grapple with higher costs. Investors may also see lower stock prices as production prices increase and company profits struggle to keep up.