Surging prices over the last year have hurt demand for non-essential products, forcing retailers to slash prices on everything from toys to electronics to clear stocks.
The discounts helped drive a 0.7% increase in customer traffic during Target's fourth quarter, but took a toll on gross profit margins, which fell 3 percentage points.
The big-box retailer forecast full-year earnings of $7.75 to $8.75 per share, below analysts' estimates of $9.23, according to Refinitiv data.
Other retailers including Walmart, and Home Depot have also issued conservative annual forecasts.
Surging U.S. consumer prices have raised fears among executives that the U.S. Federal Reserve could further lift borrowing costs, leading to an economic downturn in the second half of the year.
"We're planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating environment," Target Chief Executive Brian Cornell said.
The company's comparable sales in the quarter ended in Jan. 28 rose 0.7%, while analysts had expected a 1.5% fall.
Target in November had forecast fourth-quarter comparable sales to fall in the range of a low single-digit percentage, saying it was a witnessing a "precipitous decline" in discretionary demand.
Higher markdowns, however, helped the company bring down its inventories in discretionary categories by about 13% at the end of the quarter compared to a year ago.
Excluding items, Target earned $1.89 per share in the fourth quarter, compared to estimates of $1.40 per share.
(Reporting by Uday Sampath in Bengaluru; Editing by Arun Koyyur)
