Target’s profits fell 52% in the third quarter and the retailer warned of a slow holiday.
Target blamed inflation and worsening economic prospects for its miserable quarter — and also cut its forecast for the rest of the year. That sent shares down more than 12% in pre-market trading.
Chief Executive Officer Brian Cornell said that in recent weeks “sales and earnings trends have softened significantly, with guests’ shopping behavior increasingly affected by inflation, rising interest rates and economic uncertainty.”
However, not all was bleak: Sales of essentials, including food and household items, were strong. Similar to Walmart, Target said sales in “discretionary categories” like electronics and apparel hurt its bottom line.
Target (TGT) plans to cut costs by $3 billion over the next three years in an effort to “simplify and gain efficiencies across its business with a focus on reducing complexity and lowering costs,” it said.
Looking forward to the busy holiday shopping season, Cornell said, “The rapidly evolving consumer environment means we plan the year’s balance sheet more conservatively.” The target forecast is a low single-digit percentage drop in sales in stores open for at least a year.
“This quarter confirms that the middle-class consumer has been hit hard by inflation and is changing the way they spend by trading in, buying more value-priced goods, and switching to white-label products,” said Hilding Anderson, head of retail strategy. at digital consulting firm Publicis Sapient, in an email. “It indicates continued headwinds for large retail non-value players during the balancing act this holiday season.”
Earlier this year, Target’s inventory glut forced the company to hold steep discounts on big-ticket items to mitigate the problem. It set low prices for some discretionary purchases on which consumers backed out and canceled pending orders from suppliers.
Target shares are down more than 20% for the year.