Amid fierce retail competition, Target still has ways to go in proving value to consumers

After a full year of sales declines, it's clear American consumers are testing Target to prove its value as they continue to stretch their dollars and shop around in the face of higher interest rates and prices.

Target said Wednesday its comparable store sales were down 3.7% in the most recent quarter. At the same time, Walmart's were up 3.8%, and Amazon also saw increases.

The decrease in Target's quarterly revenue, which was expected, led to a slight dip in profits, the Minneapolis-based retailer said.

"We are not yet satisfied with our topline performance, and we're far short from where we expect to operate over time," said Target CEO Brian Cornell in a call with media this week. "However, we've seen sustained improvement in multiple business drivers over the last several quarters. This reinforces our confidence that we're moving in the right direction."

While executives said they see signs of improvement, including splurges on activewear and the latest Taylor Swift album, the earnings report came on the heels of an announcement Monday that the chain would cut prices on 5,000 items. Target this year also has reimagined its Target Circle loyalty program to make it easier for customers to take advantage of deals and launched low-price brand Dealworthy that includes items like cotton swabs and toothbrushes priced at 99 cents.

The fight for consumer dollars amid stubborn inflation is fierce. Home Depot also saw declining sales for a third quarter in a row as homeowners put off improvements.

And Walmart, even with its rosy forecast, announced layoffs and a return to corporate offices for remote workers. Last month, it launched a new private brand of gourmet food to try to get shoppers to spend more. While the majority of Walmart shoppers come from low- to middle-income households, the retailer's chief financial officer, John Rainey, said last week that most of its gains were from more affluent households.

He also said Walmart saw more spending on non-discretionary items such as groceries and household essentials.

That's where Target is losing the shopping battle. Its frequency category, which saw enormous gains during the pandemic, had sales declines in the low single digits over the three-month quarter as shoppers went elsewhere.

Despite softer discretionary spending trends that have continued at Target, Target executives said they are confident there will be a turnaround for the company in the next few months.

"We like the momentum that we see in the business, and we like the plans we have in place," said Michael Fiddelke, Target's chief operating and financial officer. "[There] will be newness and value and those important seasonal moments."

Shoppers are still turning to Target for beauty supplies. And while Target's home department and "hardlines" category (think electronics, hardware and sporting goods) saw sales declines, there were some bright spots such as the Prince pickleball equipment launch and an exclusive version of Taylor Swift's "The Tortured Poets Department" album, which became the biggest music pre-order in Target's history.

Apparel sales, which have suffered as consumers continue to cut back on discretionary spending, improved by about 4% with the help of Target's Wild Fable and All in Motion labels and a limited-time collection with wrap dress icon Diane von Furstenberg. However, sales in the apparel category were still down compared to a year ago.

"Our style credibility and our ability to offer value in fashion in this competitive environment gives me a lot of confidence that we can accelerate that [improving] trend," said Christina Hennington, Target's chief growth officer.

The loyalty revamp also showed early success, executives said. The April Target Circle Week had the most participants ever with millions more customers shopping the event than last year.

Plus while in-store sales were down 4.9% in the quarter, digital comparable sales were up 1.4%, the first increase in online revenue in more than a year.

For the summer and the remainder of the year, Target executives hope to have flat to 2% sales growth.