() Target’s CEO is warning that the Trump administration’s tariff war could lead to “massive potential costs” for the company, even as he reassures customers that a storewide price hike would be a “very last resort.”

Brian Cornell said Wednesday that the company faced an “exceptionally challenging environment” in the first quarter of the year. According to ABC News, the 2.8% decline in sales thus far is attributed to both the tariffs and the company’s rollback of its diversity, equity and inclusion policies.

That change triggered a boycott of the company, which was once lauded for its DEI stance.

Target shares fall 3.5%: Report

The Associated Press reported that shares in Target fell 3.5% in midday trading Wednesday.

Target’s drop in sales was bigger than anticipated, and Cornell warned that the decline is likely to remain or worsen as worried customers continue to tighten their budgets.

“The difficulty level has been incredibly high given the rates we’re facing and the uncertainty about how these rates in different categories might evolve,” Cornell said, according to ABC News. “We’re focused on supporting American families and how they manage their budgets.”

US reaches trade agreement with China

The U.S. this week reached a trade agreement with China, which the network described as the latest “softening” of Trump’s levies on other countries. Many of the tariffs remain in place, however, including a 10% levy on nearly all imports from outside the U.S.

Cornell declined to give specifics on how the tariffs are expected to influence consumer prices but said the company is looking at ways to offset the worst of the tariffs’ impact.

“We look at competition,” Cornell said, according to the AP. “We make adjustments literally each and every week, so we’re constantly adjusting pricing. Some are going up. Some will be reduced.”