Target stocks stumble amid gloomy holiday forecasts

Target warned of weak consumer demand ahead of the busy holiday season, which led to a 15 percent drop in its share price in pre-market trading and a sell-off among rival retailers.

“In the final weeks of the quarter, sales and earnings trends softened significantly, with guests’ shopping behavior increasingly affected by inflation, rising interest rates and economic uncertainty,” CEO Brian Cornell said, as the company reported its latest quarterly earnings on Wednesday.

“This resulted in a third-quarter earnings performance that was well below expectations.”

The Minneapolis-based retailer lowered its guidance for the fourth quarter, forecasting sales declines in the single-digit range, “based on weak sales and earnings trends that emerged late in the third quarter and continued through November.”

The “rapidly evolving consumer environment” will lead to “more conservative” actions for the rest of 2022.

The warning weighed on retail peer stocks in pre-market trading Tuesday, with Best Buy, Macy’s and Costco dropping 4.1 percent, 2.8 percent and 2 percent, respectively. Shares in Wal-Mart, which on Tuesday raised its guidance for the year, fell 1 percent, while TJX rose 0.2 percent after raising its full-year forecast on Wednesday.

Target also said on Wednesday that it will implement a plan to cut costs from $2 billion to $3 billion over the next three years.

The retailer has suffered from overstocking this year, necessitating discounts to remove it from shelves that have affected margins and contributed to a series of profit warnings this year.

Target said it now expects a “wide range” operating margin rate in the current quarter to be “centered around” 3 percent.

Target’s profit fell more than 52 percent from a year ago to $712 million in the third quarter, while revenue rose 2.4 percent to $26.5 billion. Analysts expected net income of $971 million on revenue of approximately $26 billion.

The results were in contrast to retail peer Wal-Mart, which on Tuesday reported better-than-expected results, although Chief Financial Officer David Rennie told analysts “the consumer is nervous.”

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