Target’s stock plummeted 20% in premarket trading on Wednesday following the company’s third-quarter earnings report, which significantly missed Wall Street’s expectations.
The retailer’s disappointing results also led to a reduction in its full-year profit outlook, marking a major setback for the discounter.
For the fiscal third quarter ending November 2, Target posted earnings per share (EPS) of $1.85, far below the expected $2.30 and the company’s own forecast. Revenue for the quarter came in at $25.67 billion, just shy of the $25.90 billion analysts had anticipated. The retailer’s net income also fell 12% year-over-year to $854 million.
Despite efforts to drive sales with price cuts on thousands of items and an early start to its holiday sales, Target struggled to boost traffic and sales. Comparable sales grew only 0.3% during the period, a marked slowdown from the 1.5% increase analysts had projected. The company also reported a 1.9% drop in in-store comparable sales, though digital sales saw a solid 10.8% increase.
Target’s challenges were exacerbated by higher supply chain costs, particularly related to inventory buildup in anticipation of a potential port strike, which ended up being brief. These elevated costs, combined with weaker-than-expected demand for nonessential items like clothing and home goods, put pressure on the retailer’s bottom line.
In response to the weaker-than-expected performance, Target revised its full-year adjusted earnings guidance to a range of $8.30 to $8.90 per share, down from the previous forecast of $9.00 to $9.70. The revised forecast is also lower than the $9.55 per share that analysts had been anticipating.
Despite the challenges, Target remains optimistic about its long-term prospects. CEO Brian Cornell cited consumer hesitation in discretionary spending and the higher costs related to inventory and digital fulfillment as key factors weighing on results. Still, the company is confident that its price reductions on frequently purchased items will resonate with price-conscious shoppers in the holiday season.
This earnings miss contrasts with the performance of rival Walmart, which exceeded expectations and raised its full-year outlook just the day before. Walmart has benefitted from growing sales in discretionary categories, particularly in clothing and general merchandise, which has helped the company gain market share among higher-income consumers.
With input from CNBC, Market Watch, and Bloomberg reports.
