TargetTGT reported well below third-quarter estimates Wednesday morning and warned of the holiday quarter, citing weakening trends in consumer spending. TGT shares plummeted before the open.
That is in stark contrast walmart (WMT). The world’s largest retailer reported surprising earnings per share, albeit a mere 3%, while Walmart US same-store sales rose 8.2%. The Dow Jones giant also increased guidance. Walmart also continued to make progress in reducing inventories after consumers pulled out large items earlier this year.
WMT shares rose 6.5% on Tuesday, breaking out of a buying point. Walmart shares fell slightly early Wednesday.
Target earnings were down 49% to $1.54 per share versus views for $2.18. That’s after falling 89% in Q2 and 41% in Q1, amid costly stock liquidations.
Revenue rose 3.4% to $26.52 billion, just above forecasts of $26.4 billion. Same-store sales increased 2.7% versus estimates of 2.2%.
Target sees declining sales in the crucial fourth quarter of the holiday season.
“Based on declining sales and earnings trends that emerged late in the third quarter and continued into November, the company believes it is prudent to plan for a broad range of sales results for the fourth quarter centered around a low-single-digit decline in like-for-like sales, consistent with those recent trends,” Target said in its earnings release.
In addition, the company said it had launched an enterprise-wide efficiency effort to streamline operations. It offered few details about the focus of this effort, but said it was looking for savings of $2 billion to $3 billion over the next three years.
Target stock fell 13% in premarket trading, indicating a gap below the 50-day moving average. On Tuesday, TGT shares gained 3.3% to 178.98 in response to Walmart earnings and rosy expectations for the fourth quarter.
Target stock was bottoming out with a buy point of 183.99.
Retail stocks are looking for ways to beat inflation
Retailers are struggling to maintain profit margins in the recent inflationary environment. Analysts reward those who have found ways to increase their prices and profits through creative marketing, promotional selling or boosting their online presence.
Last week, Target announced that it will be rolling out a new store format in 2023, designed for online shoppers, same-day delivery, and takeout offerings. The new stores will be approximately 20,000 square feet larger than the chain’s average store size.
“Target’s stores are at the heart of how we serve our guests, whether they’re browsing the aisles, shopping online, or stopping by for same-day services like Order Pickup and Drive Up,” said John Mulligan, executive vice president and chief operating officer. target officer.
That might be a little late for this year’s Christmas shopping season.
The big difference is in profit margins, return on equity and earnings changes, which have led to worse timeliness and SMR ratings for Target. That’s easy for investors to see given the multiple quarters of inferior earnings performance since the inflation monster started to bite.
Target warned that operating margins will only be about 3% in the fourth quarter.
TGT ranks #4 in IBD’s Retail-Discount Chains industry group, behind leaders Costco wholesale (COST), Price-conscious (PSMT) and Walmart. Target’s composite rating is a low 56 and its relative strength rating is 39.
Follow Michael Molinski on Twitter @IMmolinski
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