NEW YORK (AP) — Target etched out a slim sales increase in the third quarter but profits slumped as inflation-weary customers pulled back on spending and costs related to a dockworker strike in October dragged on results.
The Minneapolis retailer fell short of Wall Street expectations for the quarter and its outlook for the final three months of the year also disappointed industry analysts in an environment in which Americans are still spending, but being more selective.
The most recent quarter at Target stands in stark contrast to rival Walmart, which reported another quarter of stellar sales Tuesday and released optimistic projections for the holiday season.
Shares plummeted 20% before the opening bell Wednesday.
“We encountered some unique challenges and cost pressures that impacted our bottom-line performance,” said Chairman and CEO Brian Cornell.
Target posted net income of $854 million, or $1.85 per share, in the quarter ended Nov. 2, far short of the $2.30 analysts were looking for, according to FactSet, and down from $971 million, or $2.10 per share, in the year-ago period.
Sales rose to $25.67 billion, up from $25.4 billion last year, but fell shy of Wall Street expectations.
Target said that it now expects its earnings per share to be in the range of $1.85 to $2.45 for its fiscal fourth quarter. That’s below the $2.65 per share expected by analysts polled by FactSet.
The retailer reported that its comparable sales — those from stores and digital channels operating for at least 12 months — rose 0.3% during the third quarter. That’s below the 2% gain posted in the second quarter. The increase in the April-June period reversed months of declines, including a 3.7% drop in the first quarter and a 4.4% decline during the company’s final quarter of 2023.
Comparable sales of cosmetic products rose more than 6%, while food and beverages, as well as essentials like shampoo, increased in the low single digits compared with the prior year.
There were some bright spots. Target said the number of sales transactions increased 2.4% in the quarter. Digital comparable sales also increased 10.8%, reflecting a 20% increase in same-day delivery powered by its Target Circle loyalty program and double digit increase in its drive up-service.
Still, Target faced a number of challenges. For one, only 23% of Target’s sales come from food and beverages so the company is more reliant on discretionary items like clothing and accessories, according to the company’s latest annual report.
Target executives also noted that the company, like other retailers, had to reroute some merchandise when the union representing about 45,000 dockworkers went on strike for the first time since 1977. That increased operating costs and ate into profit margins, as inventory built up in warehouses.