goal The company on Wednesday missed Wall Street's quarterly earnings and revenue expectations and reported only a slight increase in customer traffic, despite discount price cuts on thousands of items and early holiday sales.
The big retailer reversed course and lowered its full-year earnings guidance, just three months after raising that forecast. It said it expects full-year adjusted earnings per share to range from $8.30 to $8.90. That's below the $9 to $9.70 per share range it shared in August and below the $9.55 per share that analysts expected, according to StreetAccount.
Target now expects fourth-quarter comparable sales to be roughly flat. This metric includes sales on its website and stores open for at least 13 months.
Target beat Wall Street's earnings per share estimates by 20%, its biggest loss in two years. It also marks the first revenue loss since August 2023.
The company's shares fell about 20% in pre-market trading.
On a call with reporters, CEO Brian Cornell said “continued weakness in discretionary categories” and costs associated with accelerating shipments and preparing for a short-lived port strike in October hurt the company’s quarterly performance.
“It is disappointing that the slowdown in discretionary demand combined with some cost pressures has led us to fall back on our guidance after raising it last quarter,” said Chief Operating Officer Michael Fedelecki. But he added that Target feels confident in its long-term outlook.
Here's what Target reported for the three-month period ending November 2 compared to what Wall Street expected, based on a survey of analysts conducted by LSEG:
Earnings per share: $1.85 vs. $2.30 expected Revenue: $25.67 vs. $25.90 billion expected
Target, known for its stylish, cheap offerings in clothing, home goods and other discretionary merchandise, has struggled to attract consistent traffic and higher sales. Shoppers have been selective about spending after cumulative years of rising prices for food, housing and more.
To appeal to price-sensitive consumers, Target announced in May that it would lower prices on about 5,000 frequently purchased products, including diapers, bread and milk. It announced another wave of price cuts in October on more than 2,000 holiday products, including cold medicine, toys and ice cream.
Target said it will lower prices on more than 10,000 products this year by the end of the holiday season.
Target offered these discounts after hearing from shoppers about “the importance of value and affordability,” said Rick Gomez, chief commercial officer. He added that price cuts on recurring items leave more room in customers' budgets to splurge on products they want, whether it's new clothing or a beauty item.
However, these price cuts were not enough to lift Target's performance in the fiscal third quarter.
Target posted a comparable sales gain of 0.3%, as shoppers spent more on its website but less in its stores. That's less than the 1.5% gain analysts expected, according to StreetAccount.
Target's fiscal third-quarter net income fell nearly 12% to $854 million, or $1.85 per share, from $971 million, or $2.10 per share, in the same quarter a year ago. Revenues increased from $25.40 billion in the same period last year.
Customer traffic through Target's stores and website grew 2.4% year over year. Digital sales were a bright spot, growing 10.8% year over year due to double-digit gains with curbside deliveries and a nearly 20% gain with same-day home deliveries. However, comparable store sales fell 1.9% year over year.
Customers gravitated towards food and daily essentials during the quarter, along with cosmetics. Comparable sales in this category, which includes sales at Ulta Beauty stores within Target, grew more than 6%. Two other categories, food and beverage and essentials, posted low-single-digit gains compared to the same period last year.
The Minneapolis-based retailer's results run counter to trends at Walmart, which on Tuesday reported improving sales trends in discretionary merchandise for the second straight quarter. Walmart also said it is gaining market share among higher-income households.
However, big retailers have a different sales mix, with grocery accounting for about 60% of Walmart's U.S. business but only about 23% of Target's in the most recent fiscal year, according to the companies' financial filings.
Gomez said the retailer deals with savvy, selective shoppers who don't want to buy until the price is right.
“Consumers have become increasingly resourceful and strategic about how they shop,” he said. “They know the deals are out there. They're willing to look for them, and they'll wait for just the right moment to head into our stores or log into our app.”
For example, Gomez said the week before Target's Circle Week, a promotional event in October, was quieter. He added that it was the biggest “circle week” to date in terms of sales, and 3 million new members signed up for Target's loyalty program.
Target sees momentum when it introduces eye-catching merchandise, such as the debut of new exercise equipment, pet accessories, seasonal food flavors or a new hair care line, Gomez said.
Rising supply chain costs pose another challenge this quarter, Fedelke said. As the company prepared for the port strike, which lasted only a few days, Target rerouted, expedited shipments and loaded them into inventory to make sure it had the goods it needed for the holiday season.
“It came at a cost,” he said. “This meant that we were a little full earlier in the quarter than we would like to be, and we are never as efficient when our buildings are full, but we felt this was the right decision to really protect the guest experience.”
Target shares have lagged the S&P 500. As of Tuesday's close, Target stock was up about 9.5% this year, compared with the S&P 500's gain of about 24% over the same time period. The company's stock price of about $155 is also well below the pandemic highs, when its stock rose to nearly $270.
— CNBC's Robert Home contributed to this report.
