By Senad Karaahmetovic
Shares of Target (NYSE:TGT) are down about 14% in pre-market Wednesday after the retailer reported weaker-than-expected results and slashed its forward-looking forecast.
Target posted a Q3 EPS of $1.54, a significant miss relative to the consensus of $2.16. Revenue increased by 3.3% to $26.5 billion, just above the consensus of $26.39 billion. Comparable sales grew by 2.7% while the gross margin was reported at 24.7%, again lower than the 25.6% consensus.
Ebitda fell by 36% year-over-year to $1.71 billion as the company cleared through unwanted inventory. Target also said that the average transaction amount rose by 1.3%
"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. This resulted in a third quarter profit performance well below our expectations,” said Brian Cornell, chairman and chief executive officer of Target Corporation.
The company is projecting a drop in comparable sales for the current holiday period, which would be the first decline in five years. Target “predicts operating profit will shrink to about 3% of revenue -- roughly half the previous forecast.”
“Based on softening sales and profit trends that emerged late in 3Q and persisted into Nov., the company believes it is prudent to plan for a wide range of sales outcomes in 4Q, centered around a low-single digit decline in comparable sales,” Target said in a statement.
As a result, Target cut its top-line and bottom-line forecasts for Q4. While it didn’t announce massive job cuts, Target did say that it plans to save “a total of $2 to $3 billion over the next three years through” business optimization.
Stifel analysts said TGT delivered "disappointing results."
"We view the F3Q results and F4Q guidance as disappointing, particularly relative to Walmart’s results. We anticipate F2022 EPS estimates will be reduced to ~$5.50, consensus of $8.12, with TGT shares underperforming but by less than the anticipated estimate revision," the analysts said in a client note.
Quo Vadis Capital analysts said the earnings report reminded him of "2008 all over again."
"There is probably no reason to expect TGT shares to rebound before the environment as the company seems to have proven it's at the mercy of outside forces, rather than the master of its surroundings. We also think it's premature to try to call a positive inflection in the consumer, when all signs point to things getting worse before they get better," the analysts wrote in a note.
"That said, past experience with the stock and our current view on the company suggest TGT's ability to thrive when the environment shifts remains intact, which supports a constructive view at current, much lower prices," the analysts concluded.