Target on Wednesday said its sales declined in the second quarter, the first quarterly decline in six years, after customers pulled back from purchases in reaction to the company promoting transgender ideology for children as part of its “Pride” month merchandising push.
The company said its comparable sales fell 5.4 percent in the second quarter, which ended July 29, compared with the year ago period. Online purchases slumped a steep 10.5 percent. The volume of in-store transactions fell, as did the average dollar amount of transactions. In-store traffic fell 4.8 percent.
This spring, Target faced criticism and boycotts after it included merchandise promoting transgender ideology in its Pride month offerings. The company has sold merchandise linked to Pride month every June for at least a decade but this year’s inclusion of children’s items promoting transgender ideology was a step too far for many of Target’s customers.
The company acknowledged on Wednesday that the backlash against the promotion of transgender ideology in children’s merchandise hurt sales, saying “the strong reaction to this year’s pride assortment” was a “headwind” to sales.
Michael Fiddelke, Target’s Chief Financial Officer, said “traffic and top-line trends were affected by the reaction to our pride assortment, which launched in the middle of May.”
A company official appeared to acknowledge that the company had made a mistake with this year’s Pride merchandise.
“Our goal is for our assortment to resonate broadly and deliver on the target brand promise. In this case, the reaction is a signal for us to pause, adapt, and learn so that our future approach to these moments balances celebration, inclusivity, and broad-based appeal,” said Christina Hennington, the company’s chief growth officer, on a conference call discussing the quarterly results.
The Pride month collection included children’s books promoting transgender ideology. Also included in this year’s collection were “tuck friendly” swimwear that include extra room in the crotch to facilitate hiding male genitalia in swimsuits that otherwise are associated with women’s wear. Target claimed these were aimed only at adults. In addition, there were many items of children’s clothing and playthings emblazoned with rainbows and slogans associated with transgender ideology and what is often described as LGBTQ+.
Despite the decline in sales, the company posted better-than-expected profits for the quarter. Earnings per share came in at $1.80, well-above the $1.40 expected by Wall Street. The company boosted profits by reducing markdowns and inventory costs. Inventory declined 17 percent compared with a year ago, including a 25 percent reduction in discretionary categories. Freight costs and supply chain costs were also lower. The company also increased some prices.
Weak sales led Target to lower guidance for the rest of the year. The company says it now sees full-year profit of between $7 and $8 a share, down from an earlier estimate of $7.75 to $8.75.
“We saw better-than-expected profitability in the face of softer-than-expected sales,” said Chief Executive Brian Cornell. “We continue to take a cautious approach to planning our business, and have therefore adjusted our financial guidance in anticipation of continued near-term challenges on the topline.”
Shares of Target were up 2.7 percent on Wednesday morning.