Target’s profit plunged 52% in the third quarter and the retailer warned of a sluggish holiday.
Target blamed inflation and a deteriorating economic outlook for its miserable quarter — and also lowered its outlook for the rest of the year. That sent shares down more than 12% in premarket trading.
CEO Brian Cornell said that in recent weeks that “sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty.”
Still, it wasn’t all bleak: Sales of necessities were strong, including food and house essentials. Similar to Walmart, Target said sales in “discretionary categories” like electronics and clothing hampered its bottom line.
Target (TGT) plans to reduce costs by $3 billion over the next three years in an effort to “simplify and gain efficiencies across its business with a focus on reducing complexities and lowering costs,” it said.
Looking forward to the busy holiday shopping season, Cornell said the “rapidly evolving consumer environment means we’re planning the balance of the year more conservatively.” Target forecasts a low-single digit percentage decline in sales at stores open at least a year.
“This quarter confirms that the middle-class consumer has been hit hard by inflation and is changing the way they spend by trading down, buying more value-priced goods, and shifting to white label products,” said Hilding Anderson, head of retail strategy at digital consultancy Publicis Sapient, in an email. “It suggests continued headwinds for the non-value players in big box retail during the balance of this holiday season.”
Earlier this year, Target’s inventory glut forced the company to hold massive discounts on big-ticket items to alleviate the problem. It marked down prices on some discretionary purchases that consumers have pulled back on and canceled pending orders from suppliers.
Target shares are down more than 20% for the year.