Target reported a drop in quarterly sales and lowered its full-year profit forecast on Wednesday, citing unpredictable spending patterns as shoppers increasingly prioritize value.
The big-box retailer maintained its guidance for the critical holiday season, anticipating a low single-digit percentage decline in fourth-quarter sales. However, it narrowed its adjusted earnings forecast for the year to between $7 and $8 per share, down from a previous range of $7 to $9. This revised guidance falls below last year’s adjusted earnings of $8.86 per share.
For the third quarter ending November 1, Target’s revenue was $25.27 billion, slightly missing Wall Street’s expectation of $25.32 billion. Adjusted earnings per share came in at $1.78.
The company’s sales have been largely stagnant for four years amid stiff competition and challenges in maintaining its past strengths in merchandise, store organization, and customer service. As of Tuesday’s close, Target’s stock has fallen approximately 35% this year and is down about 67% from its all-time high in late 2021.
Incoming CEO Michael Fiddelke, who will succeed Brian Cornell on February 1, declined to predict when sales would return to growth but stated the company is making progress. He outlined a plan to boost sales by increasing capital expenditures by 25% to $5 billion next year. Fiddelke’s strategy focuses on three priorities: reinforcing Target’s reputation for stylish merchandise, ensuring a consistent shopping experience across stores and online, and leveraging technology to advance the business.
Recent initiatives include cutting 1,800 corporate jobs, revitalizing its apparel and home goods by sending designers to gather new inspiration, and optimizing its online order fulfillment process to free up employees for customer service. The company is also using generative AI tools like “Target Trend Brain” to identify popular styles and “synthetic audiences” to test products and marketing campaigns.
Despite these efforts, challenges persisted in the third quarter. Customer traffic declined by 2.2%, and the average transaction amount fell by 0.5%. Comparable sales, which track performance at established stores, decreased by 2.7%. A bright spot was digital sales, which grew 2.4%, driven by a more than 35% increase in same-day delivery services.
Chief Commercial Officer Rick Gomez noted that consumer behavior has not changed, with shoppers “stretching budgets and prioritizing value” by focusing on food, essentials, and beauty. Sales in August and October were flat, but September saw a 4% year-over-year decline, a period impacted by the pause of SNAP benefits during the government shutdown.
In response, Target recently cut prices on 3,000 food and household items and is promoting holiday bargains, such as ornaments starting at $1 and blankets at $10. The retailer is also emphasizing exclusivity, introducing 20,000 new holiday items—more than half of which are only available at Target—and partnering with Starbucks on an exclusive Frozen Peppermint Hot Chocolate drink.
Gomez observed that even during seasonal events, customers are making trade-offs, pointing to stronger candy sales but weaker decor sales during Halloween. He expects this trend to continue through the holidays. “We think the consumer will prioritize what goes under the tree versus what goes on the tree,” he said.
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