Table of Contents
MINNEAPOLIS ─ Target Corp. announced its fiscal third quarter 2024 earnings, highlighting mixed results with slight sales growth but declining profitability. The retailer attributed these challenges to cautious consumer spending, rising operational costs and inventory management expenses as it navigates a volatile economic environment.
Sales and Traffic: Mixed Signals
Target's comparable sales rose 0.3% in the third quarter, driven by a 2.4% increase in guest traffic and a 10.8% boost in digital sales. Beauty category sales grew over 6%, while essentials and food and beverage posted modest gains. However, discretionary categories like apparel and home goods struggled, reflecting consumer prioritization of affordability. Same-day delivery services grew by nearly 20%, showcasing Target's digital innovation.
Despite these positives, revenue of $25.7 billion fell short of Wall Street's $25.9 billion forecast. Chief executive officer Brian Cornell highlighted the importance of value in today's cautious consumer mindset, noting the company's efforts to balance affordability with innovation. "We saw strengths in traffic and digital growth but faced unique challenges and cost pressures," said Cornell.
Profitability Under Pressure
Profitability was a key concern in the third quarter. Adjusted earnings per share fell to $1.85, missing analysts' expectations of $2.30. Gross margins declined slightly to 27.2%, impacted by higher supply chain and fulfillment costs, including expenses from rerouting shipments to avoid East Coast port strikes. These proactive measures created warehouse inefficiencies, further straining the bottom line.
The operating income margin rate dropped to 4.6%, with higher wages and benefits offsetting cost management efforts.
Competitive Challenges and Strategic Adjustments
Compared to competitors like Walmart and Costco, Target struggled in discretionary and essential sales. Analysts pointed to a 4% to 5% price gap between Target and Walmart, which may drive price-sensitive shoppers elsewhere.
Target forecasts flat sales for the fourth quarter and adjusted EPS of $1.85 to $2.45, revising its full-year earnings projection downward. Management remains focused on holiday promotions and delivering value-driven offerings to attract shoppers.
Market Reaction
Target's stock plunged over 20% following the report, marking its worst single-day decline in two years. Analysts cautioned that Target must balance cost control with competitive pricing to regain consumer confidence and sustain shopper loyalty in a challenging retail landscape.
