Just one day after Walmart’s stellar earnings convinced investors that bargain hunters across America were back and spending more than ever, its big-box rival Target reported dismal results for its third quarter.
Target’s stock plummeted TK%, its worst single-day percentage drop since May 2022.
Here’s all the bad news:
- Earnings per share came in at $1.85, compared to the $2.30 analysts expected—a steep 20% miss.
- Revenue came in at $25.67 billion, below the $25.90 billion forecast. It’s Target’s first sales whiff since August 2023.
- Things won’t get any brighter this holiday season: The retailer also cut profit guidance for the full year, saying it now expects adjusted earnings per share to come in at $8.30–$8.90, lower than the range of $9–$9.70 it outlined in August.
What went wrong? CEO Brian Cornell admitted that Target faced “severe challenges” in Q3, including costly reroutes of holiday products in anticipation of port strikes.
Cornell also said that years of sticky inflation had driven customers away from splashing out on the non-essentials Target specializes in, like electronics and apparel. And even though Target spent the year slashing prices on about 5,000 items such as diapers and milk, the discounts didn’t spur purchases as intended.
Duel of the bellwethers
So who should we believe is giving us a more accurate picture of the American holiday shopper: Walmart or Target?
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They could both be right. Citi analyst Paul Lejuez downgraded Target’s stock today, arguing that bargain-hungry shoppers are picking Walmart over Target. Why? Target is generally considered a bit more upscale, and its prices on key items are still about 4% to 5% more expensive.
Another key difference: Those need-to-have groceries make up the majority of Walmart’s sales, but less than half of Target’s.
Deutsche Bank seconded the downgrade, demoting Target to "hold" from its previous "buy" rating.
"Today's results indicate a significant deterioration in market share, primarily to WMT and AMZN," wrote analyst Krisztina Katai. "This, coupled with the necessary investments in infrastructure and supply chain modernization to remain competitive, suggests a longer time-line to recovery than initially projected."
The big picture: But not every analyst was as pessimistic. Target reported its foot traffic was up 2.4% year over year, and digital same-store sales rose nearly 11%. Both D.A. Davidson and Edward Jones maintained their “buy” rating.
Target optimists (and there aren’t many) hope that as inflation continues to cool and consumers regain spending power, the long checkout lines at giants like Costco and Walmart will eventually make their way across the strip mall to Target.—LB