Target’s Q3 Earnings Take a Hit: Supply Chain Woes and Higher Costs Weigh on Profits
Disappointing Results Send Shares Plummeting
Target Corporation’s (NYSE:TGT) shares are taking a beating in the premarket session on Wednesday, following a disappointing third-quarter earnings report. The company’s adjusted earnings per share of $1.85 fell short of the Street’s expectation of $2.30, while quarterly total revenue of $25.67 billion (+1.1% year over year) missed the analyst consensus estimate of $25.90 billion.
Challenges and Cost Pressures Take a Toll
According to Brian Cornell, chair and chief executive officer of Target, the company faced unique challenges and cost pressures that impacted its bottom-line performance. The third-quarter gross margin rate decreased by 0.2 percentage points to 27.2%, primarily due to higher digital fulfillment and supply chain costs. These costs were driven by increased inventory levels, higher digital sales volume, and new supply chain facilities coming online.
Operating Income Takes a Hit
Operating income of $1.2 billion was 11.2% lower than last year, further contributing to the company’s disappointing performance.
Bright Spots in Comparable Sales
On a more positive note, Target’s third-quarter comparable sales increased by 0.3%, driven by traffic and digital performance. Guest traffic grew by 2.4% compared to the prior year, while digital comparable sales rose by 10.8%. This growth was fueled by nearly 20% growth in same-day delivery powered by Target Circle 360 and double-digit growth in Drive Up services.
Segment Performance
Beauty comparable sales grew by more than 6%, while the Food & Beverage and Essentials categories saw low-single-digit growth compared to the previous year.
Balance Sheet and Outlook
Target exited the quarter with cash and equivalents worth $3.433 billion and inventory worth $15.165 billion. The company’s long-term debt and other borrowings as of quarter end was $14.346 billion. Looking ahead, Target now forecasts adjusted EPS between $8.30 and $8.90 for FY24, down from the previous guidance of $9.00 to $9.70. The revised FY24 EPS outlook is also below the consensus estimate of $9.55.
Fourth-Quarter Expectations
For the fourth quarter, Target expects its adjusted EPS to range between $1.85 and $2.45, below the consensus estimate of $2.66.
Price Action
As a result of the disappointing earnings report, TGT shares are trading lower by 16.9% at $129.95 in the premarket session on Wednesday.
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