Target Corp (TGT)

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Target Stock Plunges After Q3 Earnings Miss, Holiday Sales Forecast Cut
By: TheStreet | November 16, 2022

• "In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty," said CEO Brian Cornell.

Target Corp. (TGT) posted much weaker-than-expected third quarter earnings Wednesday, and lowered its full-year profit forecast, amid what the retailer called a "meaningful shift" in spending habits linked to surging inflation and broader economic uncertainty.

Target said adjusted earnings for the three months ending in October were pegged at $1.54 per share, down 49.2% from the same period last year and well shy of the Street consensus forecast of $2.12 per share.

Group revenues, Target said, rose 3.3% to $26.5 billion, just ahead of analysts' estimates of a $26.4 billion tally. Target said same-store sales rose 3.2%, topping the Refinitiv forecast of 2.8%, while gross margins narrowed 330 basis points from last year to 24.7%.

Inventories rose 14.4% from last year to $17.117 billion, Target said, a figure that narrowed from the 36% gain recorded over the second quarter, "supported by the decisive actions we took earlier this year".

Looking into the final months of the group's fiscal year, Target said it sees a low single-digit decline in same store sales over the holiday quarter, with an overall operating margin of 3%, down from 3.9% over the third quarter and 8.4% over the same period last year.

"In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty," said CEO Brian Cornell. "This resulted in a third quarter profit performance well below our expectations."

"While we're ready to deliver exceptional value for our guests this holiday season, supported by the decisive inventory actions we took earlier this year, the rapidly evolving consumer environment means we're planning the balance of the year more conservatively," he added. "We're also taking new actions to drive efficiencies now and in the future, optimizing our operations to match the scale of our business and drive continued growth."

Target shares were marked 15.8% lower in pre-market trading immediately following the earnings release to indicate an opening bell price of $150.98 each, a move that would extend the stock's year-to-date decline to around 36%.

Target's poor results were a sharp contrast to the better-than-expected October quarter update from its larger rival, Walmart WMT, prior to the open yesterday, and speaks to the different mix in sales for the two biggest U.S. retailers.

Walmart, which has a much larger grocery component to its overall revenues and competes at a lower price point on non-discretionary items, said sales rose 8.7% from last year to $$152.8 billion, helping produce adjusted earnings of $1.50 that beat Street forecasts by 18 cents per share.

Looking into the final months of the year, Walmart said it sees adjusted earnings declining by between 6% and 7% from 2021 levels, an improvement from its prior forecast of a slump of between 9% and 11% and its July estimate of a 12.5% decline.

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