Target Corp. reported a triple miss for the fiscal third quarter and gave a negative outlook, citing “unique” difficulties and costs. Shares of the company fell sharply and were on track for their worst day in more than two years.
The company TGT -21.55% also said that its margins went down because of higher digital delivery and supply-chain costs caused by having to manage more inventory and more digital sales.
“We saw a lot of good things in the business,” said CEO Brian Cornell. “There was a 2.4% rise in traffic, nearly 11% growth in the digital channel, and continued growth in the beauty and frequency categories.” “But at the same time, we ran into some unique problems and cost pressures that hurt our bottom line.”
During a conference call to talk about the findings, Cornell said that the company had “healthy” traffic growth in the quarter, but that the average ticket price went down, which the CEO acknowledged were headwinds. “Consumers are still being cautious with their spending, especially on things they don’t have to,” he said.
He also said, “Several years of price inflation” show that many of the same trends that have been defining the world for a while are still present.
In this situation, he said, people are “waiting to buy until the last moment of need.” At the same time, he said, people “sometimes allow themselves to splurge a little bit.”
The recent strike at U.S. East Coast and Gulf ports was one of the “unique challenges” Cornell said the company’s supply chain has had to deal with. He said that Target’s supply chain had costs that were higher than planned.
Target’s COO, Michael Fiddelke, said that the company knew about the port strike and took “decisive action” to get important goods to ports on the West Coast.
Michael Baker, an expert at D.A. Davidson, thinks that things will get better soon. “Target is having a bit of trouble navigating the current environment,” he wrote in a note that came out Wednesday. “The last four quarters have now gone Beat, Miss, Beat, Miss.” “That’s because our products are positioned in a way that works better in a period of rising spending.”
“We were disappointed with this quarter, but we think things are getting better, which should be good for TGT in 2025, so we are keeping our Buy rating,” he said.
The price of the stock fell sharply before the market opened on Wednesday. At 11:21 a.m. Eastern time, it was down 21.2%. It was also about to drop the most in a single day since May 18, 2022, when it fell 24.9%.
Net income dropped from $971 million, or $2.10 a share, in the same quarter last year to $854 million, or $1.85 a share. That was a lot less than the $2.30 per share that FactSet thought it would earn.
Total sales went up 1.1% to $25.67 billion, but they were less than the $25.88 billion that FactSet predicted. This was the first miss on the top line in five quarters and the second miss in eleven quarters.
Similarly, sales at shops that had been open for at least 13 months went up 0.3%, which was also less than the 1.5% rise that was expected.
Compared to the same time last year, digital sales went up 10.8%, and same-day delivery businesses saw growth of almost 20%.
The operating income margin rate went down from 5.2% to 4.6%, and the gross margin rate dropped from 27.4% to 27.2%.
The company thinks that adjusted EPS for the fourth quarter will be between $1.85 and $2.45, which is less than the $2.65 that the FactSet average says it will be.
So far this year, the stock is down 14.3%, while the Consumer Staples Select Sector SPDR exchange-traded fund XLP -0.92% has gone up 10.8% and the S&P 500 SPX -0.53% has gone up 23.2%.
