Target tops third quarter expectations
NEW YORK – Target on Wednesday reported a hefty third-quarter profit increase that handily beat Wall Street expectations as the retailer held down costs and cut inventory. Revenue slipped more than 4%, however, as customers saddled with broadly higher costs pulled back on spending as the holiday season nears.
The Minneapolis retailer has been trying to right itself after loading up with too much inventory last summer and was forced to discount heavily to clear it. Now, many customers are making tough decisions about what they can afford because prices for food and other basics have climbed. Inflation has moderated, but a bigger chunk of paychecks is needed to cover immediate needs.
CEO Brian Cornell said on a conference call with reporters on Tuesday that higher interest rates, increased credit card debt and reduced savings rates have left customers with less discretionary income, forcing them to do trade-offs. For example, he said that the chain is seeing more consumers making last-minute purchases on such items as gas. And instead of buying sweatshirts or denim in August or September, they’re now waiting until the weather turns cold.
“It’s clear that consumers have been remarkably resilient,” Cornell said. “Yet in our research, things like uncertainty, caution and managing a budget are top of mind.”
Cornell noted that food prices are up 25% compared with 2020.
Target is among the first major U.S. retailers to report the latest quarterly results. Walmart and Macy’s report on Thursday and may provide a better idea of how consumers are feeling as the holiday approaches.
Home Depot, the nation’s largest home improvement chain, reported on Tuesday that sales slid as homeowners held off on larger renovations and things like appliances, which are often purchased with credit cards.
Target narrowed its outlook for the year as well on Wednesday.
Target is more vulnerable than Walmart and other big-box discounters. More than 50% of Target’s annual sales come from discretionary items like toys, fashion and electronic gadgets.
Target’s falling sales come amid a broader pullback in spending by U.S. consumers.
Target reported a 36% increase in third-quarter profit of $971 million, or $2.10 per share, easily beating Wall Street expectations for per-share earnings of $1.47, according to Factset.
Revenue fell 4.2% to $25.4 billion, but that too was better than than the $25.29 billion that industry analysts were expecting.
Target has been cutting back its orders of goods like clothing and trendy home furnishings in favor of cosmetics and basics such as food. As of the end of the third quarter, inventory was down 14%, the company said. To entice shoppers to buy this holiday season, Target said it will offer more than 10,000 new items for the holidays, with thousands of gifts under $25.
Target’s beauty business continues to do well. And while comparable sales in home goods declined compared with the same time year ago, that category was up compared to the previous quarter, according to Christina Hennington, Target’s chief growth officer.