Target Misses the Mark: Q3 Earnings Fall Short, Shares Plunge
As 2024 draws to a close, businesses are rushing to finalize their end-of-year sales in hopes of boosting their revenue. For public companies, this period also brings the release of third-quarter earnings reports. This year, Target surprised analysts with a third-quarter report that underperformed profit expectations and sales goals, significantly dropping their stock price.
In late November, Target shares plummeted by 21% after the company disclosed weaker-than-expected quarterly results. Target failed to meet analyst revenue estimates of $25.9 billion with a shortfall of $230 million, ending the third quarter with earnings of $25.67 billion. While Target sales increased by 1% from the previous quarter, their net income decreased by 12% ($854 million). This drop in earnings caused investors to reconsider Target’s value and longevity.
Target’s underperformance surprises many, especially considering the promotions that took place in the third quarter. Target offered end-of-summer deals, back-to-school sales, Target Deal of the Day and Halloween promotions during this period. Significant promotions usually promote customer spending, making underperformance especially concerning. These events should have raised Target’s sales and overall earnings to, at the very least, meet expectations.
Target hopes to compensate for a weak third quarter with higher sales volume this holiday season. The company anticipates that releasing Taylor Swift’s Target-exclusive Eras Tour book will increase sales in the fourth quarter. However, Forbes speculates that even with the launch of the Taylor Swift book, Target will still fall shorter than Walmart in terms of quarterly earnings growth. While Target makes efforts to increase revenue and bring customers into the door, many are skeptical if their efforts will be enough to redeem themselves in the fourth quarter.
Some view the drastic drop in Target’s stock price as a market overcorrection to negative news and an opportunity to buy the stock at a discount. On November 19th, the stock traded at $121.72, down from $156.00 on the previous day. However, others are not as enthused. Target’s share price dropping this low has caused investors to seriously consider whether Target’s strategy can continue to be effective. It is tempting to believe that an institution like Target cannot be replaced; however, it is true that no matter how established and well-known a company is, it must continue to adapt to the surrounding market and meet consumer demands to stay relevant. One thing is sure: Target’s performance in the final quarter will be a significant indicator of its continuing viability.
Shifts in consumer spending are most likely to be the culprit of Target’s comparative underperformance in the general merchandise sector. While inflation is starting to lower, customers are not feeling the reprieve in the stores, causing them to shop less and favor spending on essentials over discretionary purchases. Target sells everything from groceries and beauty products to home decor, toys and beyond. Non-essential categories make up a significant portion of Target’s sales. For comparison, groceries make up only 23% of Target’s sales, while Walmart’s grocery sales make up around 60% of its total revenue. Target’s grocery offering is also significantly more limited than that of other destinations. While Target has a 41% market share in the department store market, it holds only 3% of the grocery market, whereas Walmart holds 25.5%. In the current economic environment, customers prefer to shop at more affordable destinations where they can get everything, including groceries, as cheaply as possible. USA Today experts claim that while Target says they intend to lower prices this holiday season, consumers are not convinced, and it will take large price slashes to convince consumers to return to Target.
While Target’s stock is slowly recovering, it has not yet returned to its previous position. The company’s failure to meet earnings estimates shocked many investors into reconsidering their positions and revaluing the company entirely. As consumers become more price-conscious, Target may lose its competitive edge over other retailers such as Walmart. Without serious changes, Target’s underperformance in the past quarter may be writing on the wall for the company’s future.
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Photo Caption: A Target store
Photo Credit: Unsplash
