Target on Wednesday lowered its full-year sales and profit expectations and forecast a dour third quarter, in another sign that Americans, squeezed by inflation, are keeping a tight grip on their spending.

The retailer, which largely sells non-essential items like electronics and home decor, has taken a hit from a shift in the spending pattern of consumers, who prefer services and experiences over such products while focusing more on groceries.

Its second-quarter total revenue fell 4.9% to $24.77 billion, marking its first decline in about six years and missing market expectations of $25.16 billion.

However, bigger rival Walmart, which is set to report earnings on Thursday, is expected to raise its annual earnings forecast as customers snap up more essentials whose sales account for more than half of its revenue.

"We are seeing food and beverage and household essentials absorbing a larger portion of the US consumers wallet," Target CEO Brian Cornell said.

"Guests are out at concerts, they are going to movies...they are enjoying those experiential moments and are shopping very carefully for discretionary goods."

The big-box retailer expects annual comparable sales to decline in the mid-single digit range compared to its prior forecast of low-single digit decline to a low-single digit increase.

It expects 2023 adjusted profit per share between $7 to $8, compared with the prior range of $7.75 to $8.75.

Target expects third-quarter comparable sales to fall mid-single digit and adjusted profit of $1.20 to $1.60 per share. Analysts polled by Refinitiv were expecting sales to decline 1.98% and profit to be $1.82 per share.

Company executives said the backlash against "adjustments" to its Pride merchandise also hit its sales and that it would carefully look at its partnerships while celebrating heritage moments.

Still, Target recorded second-quarter adjusted profit of $1.80 per share and beat expectations as it held back on steep discounts. (Reporting by Ananya Mariam Rajesh and Savyata Mishra in Bengaluru; Editing by Arun Koyyur)