Ahead of this year's holiday shopping season, Target published its third quarter earnings report on Wednesday, which featured a lower than expected sales increase of just 0.3 percent over its previous quarter, while the company's net income of $854 million was down from $971 million in the year-ago period.
Target also said it expects its fourth quarter earnings per share to be between $1.85 and $2.45, down from the $2.65 predicted by analysts who were polled by FactSet.
The move caused the company's share price to slump by 22 percent on Wednesday, Target's worst trading day in over two years. The shares have failed to recover their value over the past few days and at the end of Thursday were valued at $121.59 each, down from $157.25 at the close of Tuesday.
"I'm proud of our team's efforts to navigate through a volatile operating environment during the third quarter...At the same time, we encountered some unique challenges and cost pressures that impacted our bottom-line performance," Brian Cornell, chair and chief executive officer of Target Corporation, said in a statement posted on the company's website on Wednesday.
On the plus side, Target saw customer traffic increase 2.4 percent in the third quarter, which company executives said translates to 10 million more sales transactions from a year prior. Additionally, digital comparable sales increased 10.8 percent.
Newsweek contacted Target's press office for comment on Friday via email outside of regular office hours.
Target's below market expectations performance coincided with persistent consumer concern over inflation, which rose to 2.6 percent in October, according to U.S. Department of Labor (DOL) figures, the highest figure in seven months.
"They're being very patient, shopping for promos, looking for great value on those essential items that they need for their pantry," Cornell said about its customers on a call with reporters. "And they're shopping very conservatively and have been in discretionary categories throughout the year."
Retailers were also hit by a dock strike in early October that briefly caused 45,000 dockworkers represented by the International Longshoremen's Association (ILA) to put down their tools.
A deal was quickly reached to suspend the strike until January 15, giving time to negotiate a new contract between the dockworkers, the ports and shipping companies. Target cited the strike as a reason for the less-than-expected third-quarter profit. Company executives said Target had to reroute some merchandise when the strike happened, which increased operating costs and cut into profit margins.
Newsweek, meanwhile, spoke to retail and marketing experts who were divided over whether Target can improve its performance over the coming months, including the critical holiday season.
Lars Perner, an associate professor of clinical marketing at the University of Southern California, Marshall, said he was surprised there had been "such a large, sudden drop" in Target's net income in the third quarter compared to 2023.
"It has been known for some time that Target and Walmart are beginning to actually lower some prices given the impact that inflation has had consumers. I would have thought that the need to do this would have already been figured it, but perhaps the effect has not been sufficient to spur spending or has not yet kicked in," he said.
Perner added that inflation was continuing to depress consumer confidence, "One major issue is that although numbers suggest that inflation has come down considerably, this does not seem to be the perception of many consumers. This is probably in part because price increases have been particularly noticeable for certain highly visible food products."
However, Perner suggested there is significant leeway for Target to improve its performance over the holiday period, particularly if it can expand online via discounts.
"In terms of holiday sales for Target, one problem is that although Target has some online presence, the chain is not well associated with online shopping yet. Therefore, Target will likely have to rely heavily on in-store sales. They could offer massive online sales and heavily promote these depending on whether they have the capacity to fulfil additional online orders," he said.
The marketing expert also noted that Target has a persistent advantage over smaller retailers from economies of scale, though this doesn't work with larger rivals such as Amazon.
"Large chains such as Target often place very large orders well in advance in return for getting steep discounts...Relative to smaller chains and independent stores, Target has economies of scale, but competing with Walmart and Amazon is not easy. Also, since they have ordered so far in advance, they may have to adjust prices based on the state of the economy at the moment," he explained.
Martin Qiu, an associate professor of marketing at Wilfrid Laurier University in Ontario, Canada, was more skeptical about Target's ability to improve its performance.
"My personal view is that it's unlikely for traditional retailers to turn around. Target will be the next Sears, Hudson Bay or Macy's. Specifically, Target's recent quarterly results, which led to a 22% drop in share value, highlighted a significant challenge for traditional retailers. In the current economic climate, consumers are burdened by inflation, making low prices a priority," he told Newsweek.
Qiu also emphasized the challenge from online retailers, adding: "Traditional retailers like Target may struggle to compete on price with online platforms. Additionally, the shift towards online shopping can be further accelerated by the introduction of services like Amazon Haul, which offers ultra-low-priced items and intensifies competition in the off-price sector (e.g. Shein, Temu, TJX stores). Given these factors, it seems unlikely that Target will be able to reverse its performance during the upcoming holiday season."
Professor Anthony Dukes, a business expert at USC, Marshall School of Business, told Newsweek that Target has struggled in recent years to find a niche within the American retail market.
"It's becoming harder to see where Target fits among the other retail giants. Walmart, particularly its growing online business, has shaken the perceptions of 'cheap,' which historically aided Target in years past," he said.
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