Target’s stock dropped 20% as the retailer lowered its outlook and reported its largest earnings shortfall in two years.
Despite its early holiday sale and price reductions on thousands of goods, Target failed Wall Street’s quarterly earnings and revenue projections on Wednesday and reported only a modest increase in consumer traffic.
Three months after raising its full-year profit prediction, the big-box retailer changed its mind and lowered it. It stated that it anticipates adjusted earnings per share for the entire year to be between $8.30 and $8.90. According to StreetAccount, that is less than the $9 to $9.70 per share range it disclosed in August and less than the $9.55 per share that analysts had predicted.
Target now anticipates roughly flat comparable sales for the fourth quarter. Sales on its website and at stores that have been open for at least 13 months are included in that figure, which is sometimes referred to as same-store sales.
For the first time in two years, Target missed Wall Street’s earnings per share estimate by 20%. It was the first revenue miss since August 2023, as well.
In early trade, the company’s stock fell more than 20%, reaching a 52-week low.
CEO Brian Cornell told reporters during a teleconference that the company’s quarterly performance was negatively impacted by “lingering softness in discretionary categories” as well as expenses related to expediting shipments and getting ready for the brief port strike in October.
“It’s disappointing that we have lowered our guidance after raising it last quarter due to a slowdown in discretionary demand and some cost pressures,” stated Chief Operating Officer Michael Fiddelke. He did, however, emphasize that Target had faith in its long-term prospects.
According to an LSEG survey of analysts, the following is a comparison between what Target reported for the three months ending November 2 and what Wall Street anticipated:
Earnings per share: $1.85 as opposed to the anticipated $2.30
Revenue: $25.67 as opposed to the anticipated $25.90 billion
Known for its affordable, stylish take on apparel, home goods, and other luxuries, Target has had trouble generating consistent foot traffic and increasing sales. After years of more expensive food, housing, and other necessities, consumers have become frugal with their expenditures.
In an effort to appeal to budget-conscious shoppers, Target declared in May that it will lower the cost of over 5,000 commonly bought products, such as milk, bread, and diapers. In October, it revealed yet another round of price cuts for almost 2,000 holiday-related products, such as ice cream, toys, and cold remedies.
By the end of the holiday season, Target plans to have reduced the cost of over 10,000 items this year.
According to Chief Commercial Officer Rick Gomez, Target implemented the discounts in response to consumer feedback regarding “the importance of value and affordability.” He stated that the price reductions on often purchased things free up more money for consumers to spend on items they desire, such as a new wardrobe or cosmetics.
However, Target’s performance in the fiscal third quarter was not improved by those price reductions alone.
Customers spent more on Target’s website but less at its stores, resulting in a 0.3% increase in comparable sales. According to Street Account, that was less than the 1.5% increase that analysts had anticipated.
Target’s fiscal third quarter net income dropped around 12% from $971 million, or $2.10 per share, in the previous quarter to $854 million, or $1.85 per share. Revenue increased from $25.40 billion over the same period last year.
Year over year, Target’s website and retail locations saw a 2.4% rise in customer traffic. Due to double-digit improvements with curbside pickup and almost 20% increases with same-day home deliveries, digital sales were a bright spot, up 10.8% year over year. On the other hand, comparable store sales decreased 1.9% annually.
Throughout the quarter, food and daily necessities as well as cosmetics were popular purchases. Sales in that category, which includes sales at Target’s Ulta Beauty stores, increased by more than 6%. Compared to the same period last year, two additional categories—food & beverage and necessities—showed modest single-digit increases.
Walmart reported better discretionary merchandise sales for the second consecutive quarter on Tuesday, which is in contrast to the Minneapolis-based retailer’s performance. Additionally, Walmart reported that their market share among affluent households is increasing.
According to the firms’ financial reports, groceries made up over 60% of Walmart’s U.S. business in the most recent fiscal year, whereas just roughly 23% of Target’s. This indicates that the two big-box retailers have different sales mixes.
According to Gomez, the business is up against astute and picky consumers who won’t make a purchase unless the pricing is perfect.
He claimed that consumers are now more clever and resourceful in their purchasing decisions. They are aware that there are bargains. They are prepared to look for them and will bide their time till the ideal time to visit our stores or use our app.
For instance, Gomez said that it was quieter the week before Target’s Circle Week, an October advertising event. However, in terms of sales, it was the most successful Circle Week, and he noted that 3 million new people had joined Target’s loyalty program.
According to Gomez, Target is gaining traction when it introduces visually appealing products, such new hair care products, pet accessories, seasonal food varieties, or exercise equipment.
According to Fiddelke, increased supply chain expenses presented yet another difficulty throughout the quarter. Target redirected and hurried shipments and piled up inventory as the firm prepared for the port strike, which ultimately lasted only a few days, to ensure it had the goods it needed for the holiday season.
“There was a price for that,” he stated. “We felt that was the right decision to really protect the guest experience, even though it meant that we were a little bit fuller earlier in the quarter than we would like to be and we’re never quite as efficient when our buildings are full.”
Target’s stock has underperformed the S&P 500. As of Tuesday’s close, Target’s stock has increased by roughly 9.5% so far this year, while the S&P 500 has gained about 24%. Additionally, the company’s stock price of about $155 is far below its peak during the epidemic, when it was close to $270.