Target Corporation operates the 2nd largest general merchandise discount stores in the U.S. behind rival Wal-Mart.
Target (TGT) reported third-quarter earnings that highlighted significant challenges in maintaining competitiveness, leading to a sharp 21.41% drop in its share price—the steepest decline since May 2022. The company slashed its full-year revenue and profit guidance, reflecting difficulties in navigating cautious consumer behaviour and heightened competition, particularly from Walmart and other retail giants.
For the quarter, Target achieved a modest 0.3% growth in comparable sales, missing analysts’ expectations of +1.48%. Digital sales performed well, increasing by 10.8%, but this was offset by a 1.9% decline in store-originated sales. Gross margin fell to 27.2%, below the estimated 28.7%, as inventory costs and digital-fulfillment expenses weighed heavily on profitability. Operating income declined 11% year-on-year to $1.17 billion, while adjusted EPS of $1.85 fell short of the $2.30 consensus estimate.
Target’s efforts to stimulate demand through price reductions in discretionary categories such as apparel and home goods have not yielded the desired results. Market share losses to Walmart, which continues to expand its footprint among higher-income shoppers, remain a concern. Analysts pointed to a product mix more aligned with bullish spending patterns as a key factor limiting Target’s adaptability in a challenging environment marked by cautious consumer spending and demand for value-oriented purchases.
Looking ahead, the outlook remains subdued. Target’s guidance anticipates a Q4 adjusted EPS decline of 18–38% compared to the previous year, reflecting lower sales of higher-margin products and persistent digital-fulfillment costs. For the full year, adjusted EPS guidance has been revised to $8.30–$8.90, down from $9–$9.70 previously.
Despite these challenges, management expressed optimism about the holiday season, citing growth in essential categories like beauty and food. However, discretionary spending—which accounts for nearly half of Target’s business—remains a critical vulnerability. Inventory management issues and lingering effects from the US port strike further complicate efforts to stabilise profitability.
Analysts are split on the company’s prospects. While some believe the recent pullback in share price could present a long-term buying opportunity, others express concern over Target’s ability to adapt its strategy quickly enough to reclaim market share. There is growing scepticism about its e-commerce profitability compared to Walmart’s robust online capabilities, further pressuring margins.
Target’s path forward requires reinvention. A sharper focus on margin improvement, competitive pricing strategies, and more effective market positioning will be critical to navigating a volatile retail environment. The company’s recovery may take longer than anticipated, with 2025 remaining an uncertain horizon for meaningful growth.
As a reminder, TGT’s inclusion in the US Growth portfolio is based on fundamentals such as profitability and valuation. It’s inclusion will next be assessed on December 2nd 2024, and there is a good probability that based on the latest results, the stock will be removed from the portfolio.
