Target falls 15% after slashing its 4th-quarter outlook as customers pull back on spending in the face of higher rates and economic angst
- Target shares dropped 15% on Wednesday following the retailer's third-quarter earnings report.
- The company said customers began reducing spending and it now sees same-store sales declining this quarter.
Investors slammed Target shares lower Wednesday as the retailer fell short of third-quarter earnings expectations and that customers were cutting back on spending as they faced higher borrowing costs and uncertainty about the state of the economy.
Shares fell as much as 15% before the opening bell to $151.56, the lowest price since October 17, as the company said third-quarter profit lagged behind what it anticipated.
"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," it said in its earnings release.
Third-quarter adjusted earnings fell by 49% to $1.54 a share from a year earlier, below the FactSet estimate of $2.16 a share. Total revenue rose by 3.4% to $26.5 billion, ahead of Wall Street's estimate of $26.41 billion.
Borrowing costs have jumped this year with the Federal Reserve pushing up interest rates to tame hot inflation by slowing economic activity.
Target had previously warned that it was working to clear unwanted inventory from its shelves and in doing so had to mark down prices. With that, its third-quarter operating income margin rate was 3.9% compared with 7.8% a year earlier.
It said "softening sales and profit trends" emerged late in the third quarter and has run into November. Weakening trends led Target to project a low-single digit decline in comparable sales and an operating margin of around 3% in the fourth quarter.
The company in August had projected sales growth in the low- to mid-single digit range and an operating margin rate of around 6% in the second half of 2022.
The third quarter did bring gains in market share across all five of the company's core merchandising categories. Target also said it's aiming to cut between $2 billion to $3 billion in costs over the next three years.
Target's stock price this year through Tuesday's session had lost about 23%, underperforming the broader S&P 500 which has declined by just over 16%.
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