Target earnings miss a mile amid ‘significant shift in consumer buying habits’

Target missed the center of target by a wide margin in the third quarter as the discount retailer felt the brunt of slowing consumer spending on more discretionary goods.

“During the final weeks of the quarter, sales and earnings trends moderated significantly as customer buying behavior was increasingly impacted by inflation, rising interest rates and uncertainty. economic,” Target Chairman and CEO Brian Cornell said in the earnings release. a profit performance in the third quarter well below our expectations.

The target stock fell more than 10% in premarket trading. Shares of the retailer are down 22% year-to-date, compared to a 16% decline for the S&P 500.

On a call with reporters, Cornell added that a more cautious approach to holiday season expectations is needed given current business trends.

“Sitting here today, if you look at some of the syndicated data that’s been released, you obviously saw a significant shift in consumer buying habits as we ended October and entered November,” he said. -he declares. “So clearly this is an environment where consumers have been stressed. We know they’re spending more money on food and beverages and household essentials. They’re looking for promotions and looking for that bargain. And I I would expect the promotional focus to continue over the holidays.”

A Target logo is seen on carts at a Target store in Manhattan, New York, U.S., November 22, 2021. REUTERS/Andrew Kelly

Here are some highlights of Target’s third quarter results:

  • Operating profit margin reached 3.9%, missing estimates for 5.35%. The company says margins fell “well below” expectations.

  • The reduction in inventory, mainly due to “organized crime in retail”, has reduced the retailer’s gross profit margin by $400 million so far in 2022.

  • Comparable sales rose 2.7%, slightly above growth estimates of 2.51%.

  • “Continuous sweetness” rated for discretionary merchandise categories.

  • Inventories rose 14.4% year over year, down from the 36% growth rate in the second quarter.

  • Adjusted EPS came in at $1.54, well below analyst estimates of $2.17.

  • The forecasts have been lowered for the top and bottom lines for the fourth quarter.

  • “Soft” traffic trends announced for November.

  • Announcement of a new cost reduction initiative of $2-3 billion over three years.

Several Wall Street analysts were bracing for a weak quarter and a 4Q guide from Target, one of them being Citi retail analyst Paul Lejuez.

“We believe overall revenue remains healthy, with spending still high at the upper end of Target’s income demographic,” Lejuez said in a note ahead of the results. “However, based on our conversations in the retail industry and with Target management, we don’t believe most companies (including Target) have seen a customer turn down yet. And overall, the low-income consumer continues to struggle and prioritize consumables over discretionary items, negatively impacting Target’s margin.”

The analyst added that the Citi team “believed that the management advice for the 4th quarter was too optimistic”.

Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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