Target Shares Drop 20% After Slashing Forecast and Reporting Largest Earnings Miss in Two Years

Target's Quarterly Earnings Miss Wall Street Expectations as Shares Plunge

Target reported disappointing results for its fiscal third quarter, missing Wall Street’s earnings and revenue forecasts and experiencing its largest earnings miss in two years. Despite aggressive price cuts and early holiday sales, the retailer saw only a modest 0.3% increase in comparable sales, falling short of analysts’ expectations of 1.5%.

The company revised its full-year profit guidance downward, just months after raising it, projecting adjusted earnings per share between $8.30 and $8.90, below the previous forecast of $9 to $9.70 and analyst expectations of $9.55. Additionally, Target anticipates flat comparable sales for the fourth quarter.

Key Financial Highlights (Q3 2023):

• Earnings per share: $1.85 (vs. $2.30 expected)
• Revenue: $25.67 billion (vs. $25.90 billion expected)

Performance Factors and Challenges
CEO Brian Cornell cited “lingering softness in discretionary categories” and higher costs associated with mitigating potential supply chain disruptions, such as the October port strike, as key factors impacting performance. The company’s net income fell 12% year-over-year to $854 million, or $1.85 per share.

Digital sales were a bright spot, growing 10.8% year-over-year, driven by strong demand for curbside pickup and same-day delivery. However, in-store comparable sales declined by 1.9%. Essential goods, food, and beauty items outperformed, while discretionary categories struggled.

Chief Operating Officer Michael Fiddelke acknowledged the challenges, noting that "deceleration in discretionary demand" and increased costs had forced the downward revision of guidance.

Price Cuts and Consumer Trends
Target implemented price reductions on over 10,000 items this year to appeal to price-sensitive shoppers. While these efforts boosted customer traffic by 2.4%, they failed to significantly lift overall sales. Shoppers have become more selective, prioritizing value and timing purchases around promotional events like the company’s Circle Week, which saw record participation.

Comparisons to Walmart
Target’s results contrast with Walmart’s strong performance, as the latter benefited from improving trends in discretionary merchandise and gained market share among higher-income households. Walmart’s heavy reliance on grocery sales, which comprise 60% of its U.S. revenue compared to Target’s 23%, provided stability in a challenging retail environment.

Stock Performance
Target’s shares dropped 20% in premarket trading following the earnings report. Year-to-date, the stock has gained 9.5%, underperforming the S&P 500’s 24% rise. At $155 per share, Target remains well below its pandemic-era highs of nearly $270.

As Target heads into the critical holiday season, the retailer is focusing on eye-catching merchandise and promotions to drive consumer interest while navigating persistent economic pressures.