Target downgrades fourth-quarter sales expectation following sluggish Q3

Target’s food and beverage sales climbed during the third quarter, but not enough to lift the retailer out of a sluggish period, the company reported Wednesday. 

Executives blamed the troubles on inflation-weary consumers. More shoppers are waiting to hit stores at the best possible moment to capitalize on promotions and sales. The Minneapolis-based retailer said this targeted approach diluted third-quarter sales and lowered expectations for fourth-quarter sales, which are expected to be flat.

The news did not go over well on Wall Street, as Target’s stock price dropped almost 22% by midday Wednesday. 

“Consumers tell us their budgets remain stretched, and they’re shopping carefully as they work to overcome the cumulative impact of multiple years of price inflation,” said Target Chair and CEO Brian Cornell, according to a transcript from financial services site AlphaSense. “They’re becoming increasingly resourceful in their shopping behaviors, waiting to buy until the last moment of need, focusing on deals, and stocking up when they find them.”

Beauty was a stronghold for Target in the third quarter, posting a comparable-sales increase of 6% year over year, while food and beverage and essentials grew in the low single digits. Nutritional categories like meal supplements and protein powders also performed well.

Discretionary items, however, continue to be a sore spot for Target.

Comparable sales increased just 0.3% year over year in the third quarter, reflecting a comparable-store sales decline of 1.9%. Total revenue of $25.7 billion was 1.1% higher than last year, reflecting a total sales increase of 0.9%.

Traffic increased by 2.4% year over year, and Target’s digital sales were up 10.8%. Same-day delivery also rose nearly 20%.

Additionally, Target Circle members grew by nearly 3 million in the third quarter, which Target Chief Commercial Officer Richard Gomez noted during the call as one of the company’s biggest increases yet.

The news of sluggish sales comes after Target reduced the prices of more than 2,000 items in late October.

“Beyond being resilient, consumers have also become increasingly resourceful,” said Gomez during the call. “They know there are deals to be found, they’re willing to wait for sales, and they’re willing to search across multiple retailers to find them.”

Davis mentioned that Target is also back to offering its Deal of the Day, which will run through the holiday season.

On the grocery side, the retailer will offer more than 700 new items in on-trend seasonal flavors, including new cookie and gingerbread kits.

In September, Target opened its 11th sortation center in Detroit, Mich. The $1 million facility can serve more than 3 million consumers and is expected to process up to 60,000 packages a day by 2028.

This was the first earnings call for CFO Jim Lee, who joined the company from PepsiCo. Lee succeeded Michael Fiddelke, who is now the chief operating officer.

Other executive changes have occurred this year as Target works to break a streak of unsatisfactory quarterly performances.

Along with Gomez’s title change, Christina Hennington, who had been the chief growth officer, was named the chief strategy and growth officer, and Lisa Roath, who was the chief marketing officer, is now overseeing the food and beauty categories.

“As we execute our 2024 plans and look to the future, we’re putting key leaders and capabilities in place to sustain profitable growth over the long term,” Cornell said in September.