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Target earnings top expectations, but revenue is light

Target reported a lower-than-expected increase in sales at established stores as consumers spent more on big-ticket purchases like homes and cars than on discretionary items like apparel, a major source of revenue for department stores.

The Minneapolis-based company's shares dropped more than 7 percent Wednesday. At Tuesday's close, the stock had risen just 1.3 percent since the start of the year. (Get the latest quote here.)

Excluding gains from the sale of Target's pharmacy and clinic business and restructuring charges, earnings stood at $1.29 per share in the first quarter ended on April 30.

Revenue for the quarter came in at $16.20 billion, against the comparable year-ago figure of $17.12 billion.

Wall Street is expecting the retail giant to post earnings per share of $1.19 on revenue of $16.31 billion, according to a Thomson Reuters consensus estimate.

Sales at stores open for at least a year rose 1.2 percent, less than the market consensus of 1.6 percent, according to research firm Consensus Metrix.

Target, the sixth-largest U.S. retailer, said that given the slowdown in consumer demand, second-quarter comparable sales would be flat to down 2 percent even though it was confident that it would meet its earnings outlook of $1.00 to $1.20 per share before special items.

TGT in 2016Source: FactSet

Recently, Target has made headlines over its bathroom policy.

Following North Carolina's law requiring people to use bathrooms matching their birth gender, Target instituted a policy to allow customers and employees to use the bathroom or fitting room that "corresponds to their gender identity."

CEO Brian Cornell told CNBC on May 11 the policy fits the retailer's long history of "embracing diversity and inclusion," adding he wants everyone to feel welcome at his stores but stressed that safety is also very important.

Target has faced backlash from conservative groups such as the American Family Association, which is calling for a boycott.

Home-improvement retailer Lowe's and office-supply chain Staples also reported earnings early Wednesday.

— CNBC's Matthew Belvedere and Reuters contributed to this report.