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By Siddharth Cavale and Juveria Tabassum
(Reuters) -Target's forecast full-year comparable sales below estimates on Tuesday after a discount-driven holiday quarter results beat, and said uncertainty around tariffs as well as consumer spending would weigh on first-quarter profits.
The company joined bellwether Walmart, as well as electronics retailer Best Buy in raising caution about their expectations for the year as sticky inflation and tariffs on imports proposed and implemented by President Donald Trump temper demand.
New 25% tariffs on imports from Mexico and Canada took effect on Tuesday, along with a doubling of duties on Chinese goods to 20%, and prices could increase "over the next couple of days" for seasonal produce such as avocados as the company depended on Mexico "for a significant amount of supply" in those categories, Target's chief executive officer Brian Cornell told CNBC in an interview.
"Those are really short supply chains. We depend on Mexico during the winter. We're going to try to make sure we can do everything we can to protect pricing. But if there's a 25% tariff, those prices will go up ... certainly over the next week," Cornell said.
Target expects comparable sales to be about flat in the year through January 2026, compared with analysts' average estimate of 1.86% growth, according to data compiled by LSEG. Annual earnings forecast of $8.80 to $9.80 per share was largely in line with estimates.
While the annual forecast does not consider any impact from tariffs, consumers continue to be stressed and at least some of the noise surrounding the levies hit sales in February, a Target spokesperson said.
That could pressure profit in the first quarter, which typically ends around April, the company said, adding that demand was weak for apparel and other non-essential categories that make up more than two-thirds of Target's sales.
"We will continue to monitor these trends and will remain appropriately cautious with our expectations for the year ahead," Chief Financial Officer Jim Lee said in a statement.
"This is another disappointment from Target, which has persistently come up short over the last couple of years. While tariffs are undoubtedly a legitimate new headwind, management had known about it for quite some time, particularly since the November elections," said Sheraz Mian, Director of Research at Zacks Investment Research.
The disappointing outlook may reflect the mood of shoppers who in January pulled back spending far more than expected and showed that they are much more worried about the impact of tariffs on their wallets.