Target Corp. shares tumbled the most since November 2022 after the retailer sounded a note of caution about discretionary spending over the coming months amid its turnaround efforts.

Comparable sales fell for the fourth consecutive quarter and declined 3.7% for the quarter through early May, in line with what Wall Street was estimating. Digital sales helped to moderate the drop, while brick-and-mortar comparable-store sales missed forecasts as traffic declined.

The shares were down 9.1% in New York trading at 9:32 a.m.

The retailer’s adjusted earnings of $2.03 a share came in slightly below expectations, marking the first miss for this metric in recent quarters.

Executives said on a call with analysts that quarterly results were in line with their expectations and that they are working to return to growth this year.

“While we’re not yet satisfied with our current top-line performance and we’re far short of where we expect to operate over time, we’ve seen a sustained improvement in multiple business drivers over the last several quarters,” Chief Executive Officer Brian Cornell said.

U.S. consumers remain resilient, though the broader environment remains complicated and challenging, executives said. Shoppers remain concerned about what lies ahead due to higher interest rates, continued social and political divisiveness and the upcoming elections, said Christina Hennington, the company’s chief growth officer.

“We remain cautious in our near-term growth outlook,” she said.

UNDER PRESSURE

Discretionary spending is likely to remain under pressure in the near term, Hennington said, adding that demand for home products and appliances is staying soft. Apparel is among the areas that are improving, she said, adding that so-called frequency categories, including groceries and other essentials, dipped during the latest quarter.

Beauty products were a bright spot for the quarter, as were exclusive products like Taylor Swift’s new album and apparel via a partnership with designer Diane von Furstenberg. Consumer demand was strong during holidays like Valentine’s Day.

The Minneapolis-based company has been working to reverse declines in sales and traffic in recent quarters following a solid run during the pandemic. Higher inflation and interest rates have prompted consumers to stay on the sidelines and spend less on discretionary products. A controversy around LGBTQ-themed products further weighed on sales last year.

VALUE SEARCH

Target executives said consumers continue to search for value and new products and are spending more on services and out-of-home entertainment, though they remain cautious with their purchases.

Target said it expects comparable sales in a range between flat and up 2% for the current quarter. It forecasts adjusted earnings of $1.95 to $2.35 a share for the period, while the average analyst estimate is $2.19. It reaffirmed guidance for the full year.

Truist Securities analyst Scot Ciccarelli wrote Wednesday that many investors had expected better results on comparable sales and earnings.

“We think the continuing trends suggest that the share that Target lost has not really come back,” he wrote.

In-stock levels are improving, and Target is taking steps to reduce theft in stores, Chief Operating Officer Michael Fiddelke said on the call. Rates of shrink – inventory loss due to theft, damage and other factors – are expected to flatten this year.

CRUCIAL PERIOD

Target is navigating through a crucial period. Eyes are on the upcoming Pride Month in June following the merchandise fiasco last year, and the company is cutting LGBTQ-themed products from some stores next month. It launched a paid membership program in April, aiming to catch up to competitors such as Walmart Inc. and Kroger Co. which have been offering the service for years.

This week, the company said it would cut prices of about 5,000 frequently shopped groceries and other essentials.

The ongoing earnings season has been a mixed bag for the industry. Last week, Walmart reported higher sales and said it expects the full year to be slightly better than planned as the world’s largest retailer continues to attract consumers looking for essentials and discounts. And on Wednesday, TJX Cos. raised its full-year earnings outlook after reporting a 3% rise in comparable sales.

By contrast, home-improvement retailers Home Depot Inc. and Lowe’s Cos. posted sales declines, weighed down by weak demand for home renovations and big-ticket purchases.

Target shares had been up 9.4% this year through Tuesday’s close, in line with the rise of the S&P 500 consumer-staples index.

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