Target struggles in the third quarter and offers tempered outlook for the holidays
NEW YORK– Target posted a small sales increase in the third quarter, but profits also fell inflation-tired customers withdrew on expenses and costs related to a dock workers strike in October negatively affected the results.
The Minneapolis retailer fell short of Wall Street expectations for the quarter and its guidance for the final three months of the year also disappointed industry analysts in an environment where Americans still spendbut be more selective.
Target’s most recent quarter is in stark contrast to that of rival Walmart, which reported this another quarter of the fantastic turnover Tuesday and issued optimistic projections for the holidays.
Shares plunged 20% before the opening bell on Wednesday.
“We encountered a number of unique challenges and cost pressures that impacted our results of operations,” said Chairman and CEO Brian Cornell.
Target posted net income of $854 million, or $1.85 per share, in the quarter ended Nov. 2, well below the $2.30 analysts were looking for, according to FactSet, and below $971 million, or $2.10 per share , in the year. ago period.
Revenue rose to $25.67 billion from $25.4 billion last year, but fell short of Wall Street expectations.
Target said it now expects fiscal fourth-quarter earnings per share to be between $1.85 and $2.45. That’s less than the $2.65 per share expected by analysts polled by FactSet.
The retailer reported that its comparable sales – those from stores and digital channels that have been active for at least 12 months – rose 0.3% in the third quarter. That is less than the 2% gain recorded in the second quarter. The increase in the April-June period reversed months of declines, including a 3.7% decline in the first quarter and a 4.4% decline during the final quarter of 2023.
Comparable sales of cosmetic products increased by more than 6%, while food and beverages, as well as essentials such as shampoo, increased by low single digits compared to the previous year.
There were some bright spots. Target said sales transactions increased 2.4% in the quarter. Comparable digital sales also increased 10.8%, driven by a 20% increase in same-day delivery powered by the Target Circle loyalty program and a double-digit increase in drive-up service.
Still, Target faced a number of challenges. First, only 23% of its sales come from Target food and drink According to the company’s latest annual report, the company is therefore more dependent on luxury items such as clothing and accessories.
Target executives also noted that the company, like other retailers, had to divert some merchandise when the union representing some 45,000 longshoremen went on strike for the first time since 1977. That raised operating costs and hit profit margins as inventory piled up in warehouses. .
And Target said shoppers remain cautious because prices for necessities, while declining, are still higher than they were a few years ago.
“They are very patient, shopping for promotions and looking for value items they need for their pantry,” Cornell said on a call with reporters. “And they are shopping very conservatively and have been in discretionary categories all year.”
To boost sales, Target has lowered prices. Last spring, it lowered prices on thousands of supplies ranging from diapers to milk. There are thousands of toys on display this holiday, more than half of which cost less than $20.
The retailer has also rolled out programs to make shopping easier as it competes with fellow discounters Walmart and Amazon. Goal announced a paid membership program in April called Target Circle 360, which comes with unlimited free same-day delivery on orders over $35 and free two-day shipping on all orders.