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Target Shares Fall After Retailer Cuts Guidance for Holiday Season

Target shares sunk on Wednesday morning after the retailer missed expectations for earnings in the third quarter and downgraded its outlook for the holiday season.

The big-box retailer on Wednesday said profit fell by almost 50% in Q3, reflecting efforts to clear through excess inventory ahead of the holiday season. Comparable sales increased 2.7% in Q3 and revenue grew 3.4% to $26.5 billion.

Target also announced a plan to save up to $3 billion in costs over the next three years by “reducing complexities and lowering costs” after two years of strong growth in the pandemic. Target’s total revenue grew about 40% since 2019.

Shares of Target were down more than 13% as of Wednesday morning.

Target’s sales and profits dipped in the last weeks of the quarter, as shoppers pulled back on spending due to inflation, CEO Brian Cornell said. Given the slowdown, Target lowered its outlook for the fourth quarter — which includes the crucial holiday shopping period — and now expects a low-single digit decline in comparable sales and an operating margin rate of around 3%. Cornell added in a call with investor that he expects the holiday season to be “very promotional.”

“Our guests are exhibiting increasing price sensitivity, becoming more focused on and responsive to promotions and more hesitant to purchase at full price,” Cornell said. Target’s CFO Michael Fiddelke also noted that shoppers are showing a renewed focus on discounts as they experience “an increasing level of stress” in a highly inflationary environment.

In an effort to reduce its higher-than-usual levels of inventory, Target in June outlined a plan to offload merchandise via markdowns and order cancellations. The company canceled more than $1.5 billion worth of orders in discretionary categories in Q2. These measures resulted in a profit miss for the second quarter, though executives praised the move for placing Target in a strong position leading into the holidays.

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