Dive Brief:
- Target’s third-quarter sales of $25.2 billion were down nearly 1% from a year ago, missing some analysts’ expectations. Operating income fell 11% to $1.2 billion from $1.32 billion, while net earnings declined 12.1% to $854 million from $971 million year over year, the company said Wednesday.
- Overall comparable sales rose 0.3% in Q3, with a comparable store sales decline of 1.9%. The retailer cut its guidance.
- CEO Brian Cornell said during an earnings call that Target’s digital channel grew by nearly 11% during the quarter, with same-day delivery growth of 20%. The company also reported double digit growth in drive up, which accounted for $2 billion in sales for Q3.
Dive Insight:
Target worked to highlight value throughout this year by cutting prices on nearly 10,000 items across its owned and national brand assortment, including grocery, household, health and beauty and holiday gifts and toys.
“While this drew shoppers through the doors, it failed to convince them to splurge on the discretionary purchases that Target relies on,” Zak Stambor, a senior analyst with Emarketer, said in emailed comments.
Target lowered its guidance on Wednesday. The retailer now expects flat comps for Q4. “It's disappointing that a deceleration in discretionary demand combined with multiple cost pressures have caused us to take down our guidance after raising it last quarter,” Chief Financial Officer Jim Lee, who joined the company in September, said during his first earnings call with the retailer. “Given ongoing consumer uncertainty, we believe it's prudent to take this conservative approach, while taking swift and disciplined action to position ourselves to win during the holidays and in 2025.”
In contrast, rival big box retailer Walmart on Tuesday reported that its U.S. net sales rose 5%. Walmart also raised its full year guidance. However, Stambor noted that the retailers differ in their product mix, with groceries comprising 60% of Walmart’s sales but just 23% at Target.
Additionally, the current consumer mood is not in Target’s favor, Neil Saunders, managing director of GlobalData, said in emailed comments. “Consumers are still spending, but they’re focused more on essentials and have become far pickier about discretionary products and have cut back on the number of impulse purchases. All these things undermine the Target model which partly relies on a robust consumer who is comfortable loading their cart with things that they want, but do not absolutely need.”
And looking ahead, Stambor said retailers may soon face additional challenges if President-elect Trump moves forward with imposing overall 10% to 20% tariffs on imported goods, which could range from 60% to 100% on goods from China.
Cornell said Target has a strategy in place to deliver on its long-term financial goals. It includes maintaining a curated merchandising approach that covers both wants and needs; a focus on deals and value; and emphasizing quick, convenient customer fulfillment.
“While we're confident that discretionary demand will normalize over time, we can continue to lean on our beauty and frequency categories to help offset those top line pressures, just as we have over the last couple of years,” Cornell said.
