Target Corp. has reported disappointing third-quarter earnings and revenue despite price-cutting efforts across the board and early holiday promotions.
And the Minneapolis-based retailer was hardly helped by far more rousing results from rival and retail titan Walmart.
The discount general merchandiser, which posted its biggest miss in earnings in two years, also lowered its full-year outlook after previously raising it in August.
Target’s shares tanked on the news, down just over 20% over the past few days after recovering a similar amount of value over the past 12 months, albeit on an uneven trajectory that has seen a number of spikes and dips.
“We saw several strengths across the business, including a 2.4% increase in traffic, nearly 11% growth in the digital channel, and continued growth in beauty and frequency categories,” Target Chair and CEO Brian Cornell said in the earnings release, as he looked to the positives in Target’s performance.
However, he conceded in the update: “At the same time, we encountered some unique challenges and cost pressures that impacted our bottom-line performance.”
Consumer Discretionary Holiday Spending Categories
On the retailer’s earnings call, Cornell pointed to ongoing softness in discretionary categories and higher costs related to its response to the October ports strike, even though this was resolved far more quickly than expected.
“Consumers continue to spend cautiously, most notably on discretionary items,” he told analysts as he cited the impact of the cost of living squeeze.
In both May and October, Target had announced a range of price cuts across its product categories and the company said that as a result it will have lowered prices on more than 10,000 items this year by the end of the holiday season.
Target Financial Update
Net income at Target fell to $854 million for the quarter ended Nov. 2, compared with $971 million in the same period a year prior, while total revenue rose 1.1% to $25.67 billion, which missed analyst estimates of $25.88 billion, while in-store traffic increased by 2.4%.
Comparable sales edged up 0.3%, which also missed Wall Street expectations. Digital comparable sales fared far better and were up 10.8%, reflecting nearly 20% growth in same-day delivery and double-digit growth in curbside pickup, while in contrast comparable store sales softened by 1.9%.
The strongest categories included beauty, where comparable sales grew more than 6%, and food and beverage and essentials categories were also up low-single digits compared to the prior year, the company said.
“I’m proud of our team’s efforts to navigate through a volatile operating environment during the third quarter. Looking ahead, our team is energized and ready to deliver the unique combination of newness and value that holiday shoppers can only find at Target, and we remain confident in the underlying strength and fundamentals of our business, and our ability to deliver on our longer-term financial goals,” Cornell said.
Walmart’s Strong Third Quarter Announced A Day After Target News
Target released its results just a day after rival Walmart reported a strong third quarter and raised its outlook, and Target share watchers on Wall Street were largely underwhelmed with the update and lowered their expectations on the retailer’s performance.
“With Walmart market share gains coming largely from higher income consumers Target seems to be the one most at risk of losing additional share,” Citi analyst Paul Lejuez wrote in an advisory note.
Deutsche Bank also downgraded Target to hold from buy, citing a need for significant infrastructure and supply chain investments to stay competitive, which could weigh on margins.
“While we still believe Target’s long-term potential remains, regaining lost market share will likely require substantial price investments and stepped-up promos, pressuring margins and profitability,” said Deutsche Bank analyst Krisztina Katai, who reduced the price target for the stock to $108.
The company highlighted several potential risks, including inventory challenges, ongoing margin pressure from discounting and volatile consumer sentiment, as it anticipated lower earnings and a reduced valuation multiple.
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