Target’s (TGT) price cuts and early holiday promotions are not delivering the expected results. The target share fell by more than 16% in pre-market trading on Wednesday after reporting disappointing third-quarter earnings. Despite lowering prices on thousands of items and seeing a slight increase in customer traffic, inflation-weary shoppers are holding back on their purchases.
The weak results prompted Target to revise its full-year profit outlook, marking the retail giant’s biggest profit loss in two years as shares fell to a one-year low.
Target CEO Brian Cornell acknowledged in a statement that the company faced “unique challenges and cost pressures” that affected its bottom line. He highlighted positive aspects, including a 2.4% increase in customer traffic, nearly 11% growth in digital sales and continued expansion in the beauty and frequent purchase categories.
The Minnesota-based retailer missed Wall Street expectations, posting revenue of $25.67 billion and earnings per share of about $1.85. Analysts expected the company to report earnings of $25.9 billion, or earnings per share of about $2.30.
Target, which is smaller in scale than value-driven giants like Walmart, is making a noticeable impact with its recent efforts to focus on affordability.
In May, Target announced plans to cut prices on 5,000 items. In October, the company added another 2,000 products to the list, including categories like food and cold medicine. Analysts have noted that while Target hasn’t always been seen as a value leader, its focus on competitive pricing has helped the company gain traction in a more cautious consumer environment.
As persistent inflation continues to strain household budgets, many consumers have pulled back on discretionary spending, impacting retailers like Target. The company’s aggressive pricing strategy is starting to win back some of these customers. Executives said during the previous quarter, discretionary spending in categories such as apparel and beauty saw growth, partly due to price reductions.
Greg Zakowicz, a senior e-commerce expert at software company Omnisend, said in an email that he believes Target is on track for another strong quarter, driven by an extended back-to-school shopping season and continued price cuts for everyday supplies.
According to Cornell, essential items such as deodorant, cold medicine and underwear will remain locked behind glass shelves for the time being. Target isn’t alone in trying to combat theft. Walmart (WMT) has also adopted this approach, noting that it is experimenting with smartphone-based access for certain items.
As the holidays approach, all eyes will be on Target to see if it can get customers back.
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