Target’s third-quarter profit tumbled as the retailer struggles to lure shoppers that are being pressed by stubbornly high inflation.
The Minneapolis company said Wednesday that it expects its sales slump to extend through the critical holiday shopping season. The company also announced that it’s planning to invest another billion dollars next year to remodel stores and build new ones, increasing the total cost for the makeover to $5 billion.
Investors have punished Target’s stock recently, sending it down 43% over the past year. Shares edged lower before the opening bell.
Turning around the 19% profit slide in the most recent quarter is the latest challenge to incoming CEO Michael Fiddelke, a 20-year company veteran who is replacing CEO Brian Cornell on Feb. 1. The handover arrives as the retailer tries to reverse a persistent sales malaise and to revive its reputation as the place to go for affordable but stylish products.
Target’s troubles stand in stark contrast to rival Walmart, the nation’s largest retailer, which is thriving. Walmart reports on it’s most recent quarterly performance Thursday.
Target announced in October that it was eliminating about 1,800 corporate positions in an effort to streamline decision-making and accelerate initiatives to rebuild the flagging customer base. The cuts represent about 8% of Target’s corporate workforce.
To pump up sales, Target is offering more than 20,000 new items, twice as many as last year, and it has lowered prices on thousands of food, beverage and essential items.
“We have high but achievable aspirations for Target’s future, and we’re acting urgently to make the changes and investments,” Fiddelke told reporters on Tuesday.
With about 1,980 U.S. Stores, Target has struggled to find its footing since inflation caused pinched shoppers to curtail their discretionary spending. Customers have complained of messy stores with merchandise that did not reflect the expensive-looking but budget-priced niche that long ago earned the retailer the jokingly posh nickname “Tarzhay.”
Consumer boycotts since late January, when Target joined rival Walmart and a number of other prominent American brands in scaling back its corporate diversity, equity and inclusion initiatives, have compounded the predicament.
Retailers have spent almost 11 months navigating President Donald Trump’s wide-ranging tariffs on imports and his immigration crackdown that threatened to shrink the supply of workers.
The just ended 43-day federal shutdown is expected to be another drag on an economy, though its full impact will take months to measure. Government contract awards have slowed and many food aid recipients have seen their benefits interrupted.
Fiddelke told reporters that the company saw a weaker September but he said it was “tricky for us to isolate” the different factors behind that.
The retailer’s profit fell to $689 million in the three-month period ended Nov. 1, or $1.51 per share. That compares with $854 million, or $1.85 per share, in the year-ago period.
Adjusted per share results was $1.78.
Sales fell 1.5% to $25.27 billion.
Analysts expected profits of $1.71 per share on sales of $25.33 billion.
Comparable sales — those from established physical stores and online channels — dipped 2.7% in its latest three-month period. That’s worse then the 1.9% drop in the previous quarter and marks the third straight quarterly decline.
Sales gains in food and beverages were offset by continued weakness in discretionary goods, with anxious shoppers focused increasingly on buying essentials, even on holiday goods. But the company said recent efforts to revamp sporting goods, toys and tech gadgets have spurred stronger sales.
During Halloween this year customers bought candy and costumes but spent less on Halloween decorations, said Rick Gomez, chief commercial officer for Target.
Gomez thinks they will make similar tradeoffs during the winter holiday season.
“We think the consumer will prioritize what goes under the tree versus what goes on the tree,” he said.
Target also announced on Wednesday a partnership with OpenAI that will let users browse Target items through the tech company’s app ChatGPT. When customers are ready to buy, they’ll be directed to the Target app.
For the fourth quarter, Target expects that comparable sales will decline by low single digits. For the full year, it now expects earnings per share to be in the $7 per share to $8 per share range, down from its earlier forecast of $7 to $9.