Target misses the target

Everyone’s favorite red-logoed retailer reported Q3 earnings yesterday – and it was anything but a bulls-eye. Earnings per share missed estimates, margins continued to take a hit, and management lowered guidance for the fourth quarter. This sent shares down 11% on the day.

But the big story of the report was why Target lowered its forward-looking forecast. According to Chairman and CEO Brian Cornell, the retailer saw a “significant change” in consumer shopping patterns at the end of October moving into November. An ominous warning fit for Nostradamus, that also sent other retail stocks sliding. Macy’s and Kohl’s fell more than 8%, while Nordstrom dropped more than 10%.

🤔 So, what’s happening?... Target’s earnings report comes on the heels of Walmart’s, which was released earlier this week. And between the two, one thing seems to be clear: consumers are feeling strained by higher prices for groceries, housing, and other necessities. Cue: less discretionary spending, and more coupon-clipping and waiting for sales and promotions.

Retailers’ less expensive, in-house brands are also growing in popularity; Target’s grew at double the rate of its total business. 

Some other highlights from yesterday’s report:

• The company said it plans to cut up to $3 billion in total costs, citing the need to become more efficient after two years of sales gains. (The retailer’s revenue grew ~40% during the pandemic.)
• “Organized retail crime” drove a $400 million drop in Target’s gross profit margin.