Retail giant Target reported worse than expected third quarter earnings premarket on Wednesday. TGT cut their profit outlook again, something they have done multiple times this year. TGT stock slumped around 15% premarket. Target will continue to heavily discount its excess inventory. Competitor Walmart reported better than expected earnings Tuesday. It appears strapped customers are heading to cheaper product at WMT. Gross and operating margins are expected to shrink further again in the quarter, as discounts and higher supply-chain costs squeeze profits.
Target Q3 22 Earnings:
Highlights
- Adjusted earnings per share (EPS) $1.54 (est $2.15) tumbled by half from last quarter
- Revenue: $26.12B (est $25.97B) rose 3.4% from a year ago
- Comp Sales 2.7% (est 2.51%)
- Target’s inventory rose 14.4% from a year ago, while its revenue rose 3.4%. Compared with 36% in the second quarter and 43% in the first quarter.
- Cuts Q4 Top Line, Bottom Line Expectations
Target said consumers pulled back on their spending in recent weeks, sales worsened sharply in October and November with guests’ shopping behaviors increasingly affected by inflation, rising interest rates and economic uncertainty. This put a dark cloud over its holiday season.
Target Chief Growth Officer Christina Hennington said customers’ price sensitivity intensified during the last two weeks of October. “It was a precipitous decline and, frankly, we’ve seen those trends in the early part of November as well,” she said on a call with reporters.
Target said shoplifting has jumped about 50% year over year. So far this fiscal year, those losses have had a more than $400 million impact on Target’s margins. Most of that has come from organized retail theft.
Government data also released Wednesday showed retail spending, including purchases at restaurants, car dealers and gas stations, rose 1.3% in October from September.
“Clearly it’s an environment where consumers have been stressed,” said Target Chief Executive Brian Cornell on a call with reporters. “We know they are spending more dollars on food and beverage and household essentials, and as they are shopping for discretionary categories they are looking for promotions.”
TGT Stock Market Reaction
- 152.34 ▼ -26.64 (-14.88%) Pre-Market
- 152.34 ▼ -113.58 (-42.64%) past year
- 152.34 ▲ +94.19 (+162.01%) past 5 years
The numbers
- Long-term debt rating of A (Standard & Poor’s)
- Pays out only a small portion of its earnings as dividends (Free Cash Flow Important with inventory bloating).
- TGT pays $1.08/share quarterly dividend
- Forward Dividend & Yield 1.08 (2.80%)
- TGT’s 52-week range is 137.16 – 267.53,
Outlook
“We expect the challenging environment to linger on beyond the holiday,” and “We are committed to being clean at the end of the holiday season,” regarding excess inventory, said Target Chief Financial Officer Michael Fiddelke
Target expects a hit to its gross margin of around $600 million due to shrink said Mr. Fiddelke. “We’ve seen that trend has grown over the course of the year,” he said.
Target now expects a low-single-digit percentage decline in comparable sales and an operating margin around 3% for the fourth quarter. Quite a fall, in August Target said sales would grow in the low- to mid-single-digit percentage range for the full year and operating margin would be around 6% for the second half of the year.
Target executives said they would look to cut at least $3 billion in costs over three years. Executives said the company isn’t planning major layoffs or hiring freezes as part of the new cost-cutting program but streamlining processes inside the company.
What to watch for:
- Need to liquidate further excess inventory? Further markdown expenses are possible if customers continue to shift consumption into essential categories.
- Soaring inflation has seen TGT already forced cut its profit outlook three times in the last six months, as soaring stockpiles left the company unprepared to deal with changing demand.
- Gross and operating margins are seen falling from last year again in the quarter, as discounts and higher supply-chain costs eat into profits.
- Target’s results could give insights into what to expect for the holiday shopping season
Target will share more details about its cost-cutting plan at an annual investor day, which is scheduled for March.
About Target
Target is a general merchandise retailer with stores in all 50 U.S. states and the District of Columbia. 75% of the U.S. population lives within 10 miles of a Target store. locations We employ 400,000+ team members Our tagline is “Expect More. Pay Less.” We’ve been using it since 1994! Target’s CEO since August 2014 is Brian Cornell. leadership The Target Corporation also owns Shipt and Roundel. More to love! Target is headquartered in Minneapolis, Minnesota, its hometown since the first Target store opened in 1962 under The Dayton Company. history via Website
Source: Target, AlphaStreet
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