Retail

Target Posts Decline In Profit, Warns Of Grim Holiday Season Sales

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Target Corp forecast a surprise drop in holiday-quarter sales, blaming surging inflation and 'dramatic changes' in consumer spending for a drop in demand for everything from toys to home furnishings.

Shares of the big-box retailer fell more than 13% in premarket trading after it also said that its third-quarter profit had halved, pressuring stocks of other US retailers.


Target said it would launch a cost-cut plan to save $2 billion to $3 billion over three years, but declined to disclose specific details. It, however, said layoffs or a hiring freeze are not part of its current plans.

'Consumers Have Been Stressed'

"Clearly it's an environment where consumers have been stressed," Target chief executive officer Brian Cornell said.

A pullback in consumer spending has hit Target the hardest among major retailers as its product mix weighs more toward discretionary items such as clothing, home furnishings and electronics, prompting it to discount heavily to clear excess inventory.

Even with those discounts and the inflation rate easing in October, Target executives said consumers were rapidly giving up discretionary purchases to focus on household essentials.

"It was a precipitous decline (in discretionary demand), and frankly, we've seen those trends in the early part of November as well," said Christina Hennington, Target's chief growth officer. "It's really prudent for us to make sure that we have ... a more conservative posture going into the fourth quarter."

Outlook

Target also halved its fourth-quarter operating margin rate forecast to about 3% and said it was expecting comparable sales to fall in the range of a low single-digit percentage. Analysts had expected a 3.1% rise, according to Refinitiv IBES data.

"Target makes their money in discretionary spending, so the difficulty in the environment hits harder," said Bill Smead, chief investment officer of Smead Capital Management, which owns Target shares worth nearly $209 million.

Walmart, which dedicates most of its shelf space to groceries and other daily essentials, raised its full-year sales and profit forecast on Tuesday, but warned that its customers could slow spending on general merchandise categories in the holiday quarter.

News by Reuters, edited by by ESM – your source for the latest retail news. Click subscribe to sign up to ESM: European Supermarket Magazine.

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