Target's Q3 performance fell short of expectations and lowered its full-year guidance, causing a sharp decline in the US retail sector

According to Zhitong Finance APP, Target (TGT.US) stock price plummeted before the market opened on Wednesday after the retailer lowered its full-year earnings forecast, warning that weak quarterly sales and increased inventory have hurt profitability.

Data shows that Target's Q3 revenue was $25.67 billion, a year-on-year increase of 1.1%, falling short of market expectations; Non-GAAP earnings per share were $1.85, also below market expectations.

Comparable sales in the third quarter grew only 0.3%, missing analysts' expectations and slowing compared to the previous quarter. Specifically, comparable sales in physical stores decreased by 1.9%, while digital comparable sales grew by nearly 11%. The increase in online sales also brought higher fulfillment costs, leading to a decline in operating profit margins.

Target currently expects full-year earnings per share to be between $8.30 and $8.90, down from the previous forecast range of $9.00 to $9.70.

Company executives stated that American consumers are spending less on non-essential items such as clothing and home goods.

Target's profits have also been hit as the company stocked up on more products in response to last month's port strikes in the U.S. The cost of holding additional inventory exceeded the company's expectations, eroding profits.

Target CEO Brian Cornell attempted to downplay the impact of the negative performance during a conference call, noting that issues like the port strikes are one-time problems and that preliminary data for holiday sales is positive. He stated that the company is working to address weak demand and offset rising costs, but the decision to stock up on goods before the port strikes was the right one in case the strikes lasted longer than expected.

Cornell said, "We do not regret these actions."

Weak Performance Raises Concerns

Against the backdrop of high interest rates and inflation, Target has reported a series of weak performances, but in the second quarter, the company achieved some success in boosting sales and foot traffic through promotions such as price reductions.

Target executives stated that the holiday sales season has started well, and the recent quarter's weakness was due to the port strikes and other challenges they do not expect to recur.

Target noted that American consumers are purchasing novel and affordable items, particularly beauty and fragrance products. Food and beverage sales grew in the third quarter. The company stated that due to recent price reductions, foot traffic increased by 2.4% in the third quarter.

Target Chief Business Officer Rick Gomez said during the conference call, "Consumers are becoming increasingly savvy and strategic in their shopping." He noted that shoppers are "willing to search" for discounted items and "will wait for the right moment."

In contrast to Target, Walmart (WMT.US) raised its full-year earnings forecast on Tuesday. Walmart stated that consumer spending remains stable, with prices for most items not rising, except for groceries. Walmart also noted that sales of clothing and other everyday goods grew only in the low single digits in the third quarter, as the company seeks to expand its online product offerings.

So far this fiscal quarter, other major retailers have also reported better-than-expected performances, although some companies' results were affected by weather, such as Home Depot (HD.US) and Lowe's (LOW.US), which raised their full-year earnings forecasts due to hurricanes and warm weather boosting spending on home improvement supplies Both companies stated that due to high interest rates and mortgage rates, consumers are taking a wait-and-see attitude towards large expenditures.

On Wednesday, pre-market trading saw Target's stock price plummet by 20%, dragging down the U.S. retail sector. Dollar General (DG.US) fell nearly 4%, Nordstrom (JWN.US) and Dollar Tree (DLTR.US) dropped nearly 3%, Kohl's (KSS.US) fell nearly 2%, Macy's (M.US) declined over 1%, and Walmart fell nearly 1%.

Vital Knowledge analyst Adam Crisafulli stated in a report: "Target's weak performance highlights that much of Walmart's momentum comes from market share growth. Consumers may be 'resilient,' but they are still very selective and frugal. Target's poor performance may not bode well for companies like Kohl's, Dollar General, and Dollar Tree."