A few months after suggesting a sales turnaround was coming, Target (TGT) has delivered an earnings-day bust from start to finish.
On Wednesday, the retail giant badly missed Wall Street’s third-quarter earnings estimates, lowered full-year expectations after raising them in the previous quarter, and took a cautious stance on holiday sales and profits .
Shares fell 16% in premarket trading following the release of quarterly results.
In contrast, its rival Walmart (WMT) once again exceeded expectations – significantly – with its quarterly same-store sales, online sales growth and overall investor story. Target has slashed prices on food and other daily necessities this year in an effort to compete.
On a call with reporters, Target executives offered little explanation for the turnaround in results, other than noting that consumers are spending “prudently” in more discretionary departments such as home goods. The company also felt the brunt of unplanned costs in its supply chain as it added more inventory than it sold in the quarter – never a recipe for success for a retailer.
Target’s veteran chairman and CEO, Brian Cornell, told Yahoo Finance that it has the “appropriate approach” for the holidays, but that it “guides some conservatism.”
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Cornell added that the holiday shopping season is off to a “really good start” but acknowledged that the biggest days are still ahead. Walmart CFO John David Rainey told Yahoo Finance on Tuesday that the holiday shopping season is off to a smooth start.
Target stocks are up 9% year to date, lagging the S&P 500’s 24% gain. Shares of Walmart are up as much as 64% this year.
“The stock price appears limited in the near term given the uncertainty surrounding the holiday season, with Target facing headwinds from a promotions/event driven consumer who has likely, compared to other retailers, acutely benefited from the favorable calendar of a years ago (now a headwind ), along with rates,” JPMorgan analyst Christopher Horvers wrote in a client note.
Horvers added: “As they very often do for retailers, comparable sales and gross margin matter, with the former having a relatively low bar and the latter a high bar. Given the uncertainty and stock losses, we believe it is unlikely that Target will move to 2026. valuation soon.”
Here’s what Target reported for the third quarter, compared to Wall Street analyst estimates compiled by Bloomberg:
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Net turnover: Up 1.1% year over year to $25.7 billion, compared to estimates of $25.74 billion
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Gross profit margin: 27.2% vs. 27.4% a year ago, vs. estimates for 28.7%
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Diluted EPS: fell 11.9% year over year to $1.85, versus estimates of $2.30 (guidance: $2.20 to $2.40)
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Comparable sales: 0.3% increase year-over-year, versus an estimate of 1.48% (comparable sales last year fell 4.9%; Walmart US reported a 5.3% gain in Q3 2024)
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Inventory grew faster than sales, up 3% from the previous year.
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The company repurchased $354 million worth of stock this quarter. $9.2 billion remains available for repurchase subject to prior approval.
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The number of transactions increased by 2.4% in the quarter, while the average transaction amount decreased by 2%.
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Target ended the quarter with about $3.4 billion in cash.
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Fourth-quarter earnings per share are expected to come in at $1.85 to $2.45, compared with estimates of $2.65.
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Full-year earnings per share are expected to be $8.30 to $8.90 (previously: $9 to $9.70), compared to estimates of $9.61.
Brian Sozzi is editor-in-chief of Yahoo Finance. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips about deals, mergers, activist situations or something else? Email brian.sozzi@yahoofinance.com.
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