Target Reports Profit Plunge, Warns of Weak Holiday Sales

The bullseye logo on a sign outside the Target store in Quincy, Mass., on Feb. 28, 2022. Charles Krupa/AP Photo

Target’s latest earnings report revealed a massive plunge in profits, as the retailer warned of weak holiday sales.

The retail chain reported on Nov. 16, that profits declined 49.3 percent in its fiscal third quarter, after struggling with unwanted inventory and fears of slow sales into the holidays.

Consumer spending has lately begun to slow due to rising prices and higher borrowing rates.

The bad news prompted company executives to lower their forecast for its most important season of the year, and they are now expecting a low-single-digit decline in comparable sales.

“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,” stated Target Chairman and CEO Brian Cornell in the earnings release.

“This resulted in a third-quarter profit performance well below our expectations.”

Target’s stock plunged 13 percent by mid-afternoon, with shares down around 30 percent this year.

Target Execs Plan to Cut Costs After Massive Earnings During the Pandemic

The company announced that it plans to slash $2–3 billion in total costs over the next three years, in order to boost efficiency after two years of sizable gains, during which Target’s revenue skyrocketed about 40 percent during the pandemic.

Executives were not specific on how the company will save on expenditures, but there were no plans for layoffs or a hiring freeze. according to Chief Financial Officer Michael Fiddelke, reported the Minneapolis/St. Paul Business Journal.

Fiddelke maintained that Target will continue to invest in its workforce, but admitted that “expense management is critically important.”

“That kind of discipline will ensure we grow in a variety of economic conditions, and set our company apart in the near and long term,” he said.

Cornell said during a call with reporters that a more cautious approach to holiday season projections were needed owing to recent negative trends in the economy for retailers, reported Yahoo Business.

Operating profit margins were at 3.9 percent, below estimates of 5.35 percent, far short of expectations.

“Sitting here today, if you look at some of the syndicated data that has been released, obviously you’ve seen a significant change in consumer shopping patterns as we ended October and moved into the month of November,” said Cornell.

“So clearly, it’s an environment where consumers have been stressed. We know they’re spending more dollars on food and beverage and household essentials. They’re looking for promotions and are looking for that great deal. And I would expect that promotional focus will continue throughout the holidays,” he concluded.

Target noticed that sales have declined, as households become more discretionary in their purchases, a potential warning sign for the holiday shopping season.

Customer sensitivity to prices appear to have become worse during the last two weeks of October, according to Christina Hennington, Target’s chief growth officer .

“It was a precipitous decline and, frankly, we’ve seen those trends in the early part of November as well,” Hennington said on a call with reporters, reported CNBC.

Reviewing Gains and Losses in 2022

Target did say that it had made gains in its five major merchandise categories, after managing to offload much of the unwanted items that had piled up earlier in the year.

However, the dumping of the excess merchandise did hurt profit margins, which dropped 24.7 percent in the third quarter from 28 percent the same time a year ago.

Selling, general, and administrative expenses rose, to 19.7 percent from 18.9 percent in the year-ago quarter.

Meanwhile, inventory shrinkage, driven mostly by “organized retail crime,” hit the retailer’s gross profit margin with $400 million in losses so far in 2022, a rise of 50 percent.

“As we look ahead, we expect the challenging environment to linger beyond the holiday season and into 2023,” said Fiddelke.

The retailer has put much effort into opening an e-commerce delivery hub to sort deliveries and get online purchases to customers more quickly and cheaply.

Target said it will provide more details about its future cost-cutting plans at an annual investor meeting, scheduled for March 2023.