Target sees sales fall again in 3rd quarter

MINNEAPOLIS — After years of growth, Target Corp. for the second quarter in a row saw its sales decline.

However, profits were better than analysts expected for the third quarter as company leaders more conservatively managed the chain’s inventory, the Minneapolis-based retailer said on Wednesday.

Target customers are buying fewer items and spending less on groceries, as the retailer navigates the complicated Christmas shopping season.

As a result, comparable sales or sales from stores open for the past year dropped 4.9% in August, September and October compared with the same period last year, with sales dipping nearly 5% in stores and 6% online.

“Consumers are still spending, but pressures like higher interest rates, increased credit card debt and reduced savings rates have left them with less discretionary income forcing them to make trade-offs,” said Target Chief Executive Officer Brian Cornell, in a call with media outlets.

Shoppers are slow to pull the trigger on purchases. For example, someone who would usually buy sweatshirts and jeans in August or September might be waiting until the weather turns cold to buy warmer clothes, Cornell said.

The sales decline, which was mostly in discretionary categories as opposed to necessities, was expected. Target has dealt with cautious consumers navigating higher prices for everyday goods for more than a year. Target generated total revenue of $25.4 billion, which was in line with Wall Street estimates.

Target’s seasonal business for back-to-school as well as Halloween, though, outperformed its overall business. That could be a positive indi

cator that shoppers will open their wallets for the Christmas holiday as well.

To prepare for the holidays, Target has adjusted its prices with two-thirds of its holiday toys under $25 and a similar amount of its decorations priced below $20.

“While families want to celebrate the holidays in a big way, they are relying on us for affordable options,” said Christina Hennington, Target’s chief growth officer.

Target faces stiff pricing competition from retailers like Amazon and Walmart,

which reports its earnings today.

While Target’s third quarter performance didn’t reveal any major changes to how consumers have watched their pocketbooks, Target did solidify its profit recovery.

Target’s net income of $971 million, or $2.10 a diluted share, was up by 36% compared with last year when Target’s profit fell more than 50% during the third quarter. It was significantly better than Wall Street’s earning estimates of $1.48. During the last nine months, Target has increased its net earnings by nearly 45%.

Target leaders attributed the company’s profitability

improvements to how the company was able to reduce its inventory, which last year had been a drag on its bottom line. By the end of the most recent quarter, Target was able to cut its inventory by 14% over last year, with a 19% reduction coming from its discretionary category, which is made up of merchandise like apparel, home decor and electronics.

Some of Target’s operating costs are also normalizing with freight costs, digital fulfillment costs and other supply chain costs decreasing. Still, Target leaders said the retailer has continued to see increases in inventory shrink, which is mostly related to

theft but also includes other factors like processing errors.

Target leaders said they are beginning to see some increases in the amount of units people buy in some of its higher frequency categories like groceries, but with some inflationary prices moderating slightly, food and beverage sales continue to be on a small decline.

Beauty remains a popular category for Target, especially its partnership to sell cheaper mini versions of Rihanna’s Fenty Beauty products in its Ulta sections. Other popular products have been Stanley tumblers and its recent jewelry collaboration with Kendra Scott.