Target Corp.'s latest profit fell 52%, missing investors' expectations for the third quarter in a row as it continues adjusting to a sharp change in shoppers' behavior.
The drop during the fiscal quarter that ended last month came after declines in spring and summer shaped by a pullback in shopping, partly due to inflation, that was greater than Target anticipated.
The company said this morning that its profit amounted to $712 million, or $1.54 a diluted share, considerably less than the $2.13 that was the consensus forecast of analysts. Revenue was $26.52 billion, up 3.4%.
Sales at comparable stores rose 2.7%. Executives forecast a sales decline for the end of the year.
"Clearly, it's an environment where consumers have been stressed," Target CEO Brian Cornell, said. "We know they're spending more dollars on food and beverage and household essentials. And as they're shopping discretionary categories, they're looking for promotions, they're looking for that great deal."
The news sent Target shares down about 12% by midday. That added to the 22% decline Target shares had experienced this year through Tuesday, while the broad-market S&P 500 index had fallen about 16%.
Target executives said shoppers are waiting for things to go on sale to buy and choosing cheaper Target owned brand alternatives instead of name brands as they try to save money.
Target has also had to absorb higher-than-expected product markdowns and is seeing more theft at its stores. Theft, which Target attributed to organized efforts, is $400 million higher through the first nine months of the year than a year earlier. That decreased its nine-month gross profit margin by a half percentage point to 23.9%.
Target's report showed it is more vulnerable to inflation than its larger competitor Walmart, which reported on Tuesday that sales rose nearly 9% as people shopped for savings in groceries and other necessities.
At Target, comparable sales in the most recent quarter grew in beauty products and essentials like health and pet supplies. The back-to-school and Halloween periods saw record sales growth for Target, but executives said sales took a downward turn in the latter part of October.
"It was a precipitous decline," said Christina Hennington, Target's chief growth officer.
Target has had the most challenges in its home goods, hard lines and sporting goods sections. Despite an early Target Deal Days sale in the beginning of October, the company also saw a deceleration in toy sales.
Those trends are persisting this month, the start of Target's fourth quarter, leading executives to forecast a low-single digit decline in comparable sales for the November-January period.
With $76.6 billion in sales through nine months, Target executives said the company will reach $100 billion in annual sales, as it did for the first time last fiscal year.
But they said they expect the difficult sales environment to continue into next year. The company announced it would simplify its business to save about $2 billion to $3 billion in expenses cumulatively over the next three years. Target generates about $20 billion in operating expenses a year. The company said the savings would not come in the form of mass layoffs or widespread store closings.
Target's disappointing profit performance follows a 90% drop in profits it experienced at the start of the summer when it tried to sell off a bloated inventory of goods. Target's inventory from August through the end of October continued to creep up more than 14%, though slower than the 18% gain in the same period a year ago.
"We got a lot of product that showed up earlier than we thought it would [for holiday]," said Michael Fiddelke, Target's chief financial officer. "That fills up some of our building. That makes us operate a little less efficiently, but I'll tell you we'll take it compared to where we were a year ago when we were cutting it close and product was getting here just in time."
Both Target and the other giant Twin Cities-based retail chain, Best Buy Co., experienced huge sales gains in 2020 and 2021 when the pandemic forced people to spend more time at home and pushed spending higher on goods rather than services. A year ago at this time, Target raised its forecast for the holidays after experiencing double digit sales and traffic growth in the pandemic.
