Target is emphasizing "newness" to align sales and revenue with its improved profit situation.
It was a mixed bag at Target Corp. during the recently-concluded third quarter. Sales and revenue were down but profits beat expectations set by both the company and outside analysts.
According to Target’s latest financial report, sales comps dipped 4.9% on a year-over-year (YoY) basis, while revenue slid a similar 4.2% to reach $25.4 billion. Digital sales for the quarter were off 6% compared to last year.
On the brighter side, earnings per share (EPS) were above the top of Target’s guidance range, coming in 36.3% higher than 2022. Additionally, operating income climbed 28.9% YoY, mostly due to a higher gross margin rate.
The retailer attributed the improved profit situation to disciplined inventory and expense management. Last year, excess inventory issues caused major headaches for Target, which had to take strong measures get its assortments in line. By the end of the quarter ending Oct. 29, inventory was 14% lower than 2022's third quarter.
[Read more: "Why Retailers Must Address Phantom Inventory Issues"]
Brian Cornell, Target's chair and chief executive, said that the stronger-than-anticipated profits reflect its moves to counter headwinds that have affected its business over the past year. "In the third quarter, our team continued to successfully navigate our business through a very challenging external environment,” he said. “This profit performance benefited from our team's commitment to efficiency and disciplined inventory management, and I'd like to thank them for their tireless efforts."
Affordability remains key in the current operating climate, Cornell acknowledged during the quarterly earnings call. “The impact of very sticky food and beverage inflation – compared to pre-pandemic, food and beverage inflation is up 25% – has pressured consumers as they are making choices,” he remarked. “We’ve seen in the industry seven consecutive quarters of discretionary goods declines in dollars and units. So, you are seeing consumers who are focused on managing their budgets and then carefully shopping for those new items.”
Looking ahead, Target reported that it expects a mid-single digit decline in sales comps for the fourth quarter, similar to the third quarter results.
EVP and Chief Growth Officer Christina Hennington noted during the earnings call that the retailer is rolling out new offerings, such as its private label cookware line and bold front-end apparel displays, to boost sales in the all-important holiday season and beyond. “The fourth quarter is always competitive, and we will be well positioned with everyday prices and promotions and our loyalty programs,” she said, adding, “In an environment where people are making choices, the motivation to buy is, ‘Is this going to add value to my life? Is it relevant and is it really for me?’ Doing more of the same just isn’t going to get it done, which is why we are investing in newness.”
In other news, the company’s officers praised EVP and COO John Mulligan, who is retiring from Target in February 2024. He will transition to a strategic advisor role until February 2025.
Before he exits, Mulligan said that Target is primed for further operational growth due in part to its expanding omnichannel infrastructure. “We remain incredibly excited about our sortation centers and have started to see savings flowing through P&L,” he declared during the earnings call. “We’ve said we have at least five more of these to open, as we get the digital business growing again, and hope to get that number up.”
Minneapolis-based Target Corp. is No. 6 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America, with nearly 2,000 locations. PG also included the company on its Retailers of the Century list.