Trump tariffs: America’s second-largest retail store issues first-quarter profit warning

Retail stores have joined the Trump tariff conversation. America’s second-largest retail store, Target put out a profit warning for the first quarter following new tariffs put in place by Trump on goods from China. 

Target said, “In light of ongoing consumer uncertainty and a small decline in February net sales, combined with tariff uncertainty and the expected timing of certain costs within the fiscal year, the company expects to see meaningful year-over-year profit pressure in its first quarter relative to the remainder of the year.” 

Target’s stock is down 21% in the last year and 9% so far this year. Target’s stock has dropped 28% over the last five years, while the S&P 500 has gone up 13%.

However, the discount retailer beat expectations for sales, gross profit margin, and earnings for the fourth quarter this morning before the market opened. Target said that the better-than-expected quarter was due to continuous increases in sales of clothing and home goods. However, after the holiday numbers, things were not as good. 

Although the fine print showed that sales and margins fell year over year. Target’s sales growth in stores and online once again lagged behind Walmart’s as Walmart rolled back prices and added more groceries to its selection.

Target’s revenue streams

Net sales for the fourth quarter dropped 3.1% year over year to $30.9 billion, compared to $30.67 billion that was expected. The gross profit margin is 26.2%, up from 26.6% last year and below the 25.5% that was expected. Dividends paid per share were 19% less than the same time last year, at $2.41, compared to $2.26 expected.

Comparable sales increased 1.5% year over year versus an estimate of 1.18%. Comparable digital sales are up 8.7%. 

Inventory went up by $854 million compared to the same time last year. During the quarter, the company bought back $506 million worth of its stock. It still has $8.7 billion available to buy back under a previous order.

During the quarter, there were 2.1% more purchases, but the average amount spent on each one went down by 0.6%. Earnings per share for the whole year are expected to be $8.80 to $9.80, down from $9.24 that was expected. 

Trump tariff uncertainty is weighing on businesses

Trump has imposed 25% tariffs on goods from Canada and Mexico and 20% tariffs on goods from China. A full-blown trade war is possible because Canada, China, and Mexico all said they had “contingency plans” in case the US goods they bought were taxed.

This is already taking a toll on businesses. In January, the trade policy doubt index hit its highest level since records began in 1960. This shows how confusing things are. That doesn’t even include the new tax threats from the White House in the past few days.

In response to the Institute for Supply Management’s February survey, a US transportation equipment provider said that customers are pausing new orders because they don’t know what will happen with tariffs.

Also, a range of American household goods originate in China in closets, living rooms, and children’s playrooms.

Basic Fun!, a toy company, said it was just starting to deal with the 10% tariffs that Trump put on all Chinese products last month. Now, the fear of an extra 10% tariff could leave the company with another $5 million gap in its finances. This is because most of the toys Basic Fun! sells are made in China. Because of contracts it has already made with customers, the company has to fully absorb the extra cost of taxes until around 2026.

Companies that depend on Chinese goods aren’t the only ones worried about taxes. Even the CEO of Alcoa, one of the biggest aluminum companies in the US, said Trump’s threat to put 25% tariffs on all metal imports could cost the US 100,000 jobs.

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