Yahoo Finance

Updated May 22 at 4:24 p.m. EST

Target Corp. is keeping cautious on the under-pressure consumer, but is on track to get back to growth this year.

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And while fashion remains a drag — for now — the retailer’s apparel business showed signs of significant improvement in the first-quarter.

Buttressed by a strong collaboration with Diane von Furstenberg and momentum in its All In Motion and Wild Fable private brands, Target said its comparable sales in apparel were down in the quarter, but improved by 4 percentage points from the fourth quarter. The company also recently started wholesaling its owned brands.

“You won’t hear us claim victory until we talk about positive comps there,” said Michael Fiddelke, chief operating officer and chief financial officer, in a call with reporters. “We liked the momentum that we’ve seen in the business, we like the plans we have in place.”

Fashion is just part of the puzzle for Target, which saw first-quarter earnings slip 0.8 percent for the quarter to $942 million, or $2.03 a diluted share, down from $950 million, or $2.05, a year earlier.

Profits came in 2 cents shy of the $2.05 analysts were looking for on average, according to Yahoo Finance.

Revenues for the three months ended May 4 decreased 3.1 percent to $24.5 billion from $25.3 billion.

Comparable sales fell 3.7 percent and were in line with the companies’ expectations. Digital comps grew 1.4 percent with same-day services up 9 percent, led by a 13 percent increase in drive-up sales.

Investors wanted something more and traded shares of the company down 8 percent to $143.27 on Wednesday.

Oliver Chen, a TD Cowen analyst, said he remained “on the sidelines” with a hold rating on Target shares.

“We believe the company needs to drive more consistent traffic and would like to see improvements in apparel and home categories,” Chen said. “Traffic needs to be more consistent across seasonal moments and nonseasonal moments and customers may need time to realize Target’s value pricing strategies.”

Neil Saunders, managing director of GlobalData, added: “There is a sense among consumers that they can shop more cheaply elsewhere, which is one of the reasons there have been defections to Walmart and the overlap between the two chains has increased over the past year. This dynamic partly explains why Target is investing more in value by reducing prices on key items and launching the new Dealworthy value brand. In our view, this is a good start at remedying the growing issue of value, but we wonder whether it will be enough to stem the tide of customer erosion.”

Target’s sales declines were driven by discretionary categories — including apparel — and were partially offset by continued strength in beauty, with Ulta Beauty at Target, personal care and skin care all doing well.

“We have a number of green shoots in our business right now that we’re excited about,” said Christina Hennington, chief growth officer.

The partnership with DVF — which included more than 200 items across women’s, girls, baby apparel, accessories, beauty and home — got a special call out.

Hennington called it, “one of the strongest limited-time partnerships we’ve had in years, driving millions of unique visits to our site daily during launch week and increasing basket size by around 15 percent on average.”

Target’s budget-minded shoppers have squeezed by economic pressures, but are hanging on.

Brian Cornell, chair and chief executive officer, said: “They continue to show resiliency in the face of challenges, including a rapid rise in prices and interest rates over the last few years. They’re also continuing to normalize their mix of spending back into services and out of home entertainment. That’s contributing to continuing soft trends in discretionary categories.

“But even as prices remain elevated and inflation rates have modated, we’ve seen a meaningful improvement in discretionary trends,” he said. “This gives us some optimism that we could see a better balance between discretionary and frequency in the years ahead.”

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