Target shares plunge 15% after discounter cuts forecast, posts biggest earnings miss in two years

KEY POINTS

* Target missed third-quarter earnings and revenue estimates and cut its full-year guidance. 

* Target struggled to drive sales even after reducing prices on thousands of items. 

* The results come a day after Walmart beat Wall Street expectations and hiked its outlook.

Target on Wednesday missed Wall Street’s quarterly earnings and revenue expectations and posted only a slight uptick in customer traffic, despite the discounter’s price cuts on thousands of items and its early holiday sale. 

The big-box retailer reversed course and cut its full-year profit guidance, just three months after hiking that forecast. It said it expects full-year adjusted earnings per share to range from $8.30 to $8.90. That’s lower than the $9 to $9.70 per share range that it shared in August and below the $9.55 a share expected by analysts, according to StreetAccount.

Target now expects fourth quarter comparable sales to be approximately flat. That metric, which is also known as same-store sales, includes sales on its website and stores open at least 13 months. 

Target missed Wall Street’s earnings per share estimate by 20%, its biggest miss in two years. It also marked its first revenue miss since Aug. 2023. 

The company’s shares plunged more than 15% in premarket trading.

On a call with reporters, CEO Brian Cornell said “lingering softness in discretionary categories” and costs associated with rushing shipments and preparing for the short-lived port strike in October hurt the company’s quarterly performance. 

Chief Operating Officer Michael Fiddelke said “it’s disappointing that a deceleration in discretionary demand combined with some cost pressures have caused us to take our guidance back down after raising it last quarter.” But he added that Target feels confident in its long-term outlook. 

Here’s what Target reported for the three-month period that ended Nov. 2 compared with what Wall Street expected, based on a survey of analysts by LSEG:

* Earnings per share: $1.85 vs. $2.30 expected

* Revenue: $25.67 vs. $25.90 billion expected

Target, which is known for its cheap chic spin on clothing, home goods and other discretionary merchandise, has struggled to attract steady foot traffic and higher sales. Shoppers have been selective about spending after cumulative years of pricier food, housing and more. 

To woo price-sensitive consumers, Target announced in May that it would cut prices on about 5,000 frequently purchased items, including diapers, bread and milk. It announced another wave of price reductions in October on more than 2,000 items during the holiday season, including cold medicine, toys and ice cream.

Target’s fiscal third-quarter net income tumbled about 12% to $854 million, or $1.85 per share, from $971 million, or $2.10 per share, in the year-ago quarter.Revenue rose from $25.40 billion in the year-ago period.

Customer traffic across Target’s stores and website grew 2.4% year over year. Digital sales were a bright spot, growing 10.8% year over year because of double-digit gains with curbside pickup and almost 20% gains with same-day home deliveries. Comparable store sales, however, declined 1.9% year over year. 

The Minneapolis-based retailer’s results clash with trends at Walmart, which on Tuesday reported improving sales trends in discretionary merchandise for the second quarter in a row. Walmart also said it’s gaining market share among upper-income households. 

The two big-box retailers, however, have a different sales mix, as groceries account for about 60% of Walmart’s U.S. business but only about 23% of Target’s in the most recent fiscal year, according to the companies’ financial filings.