Citing a “very challenging external environment,” Target on Wednesday posted its second straight quarter of comparable-sales declines, though the retailer boosted its margins and earnings per share.
For the third quarter ended Oct. 28, Target’s comparable-store sales fell 4.9%, due to continued softness in discretionary spending but bolstered by strong sales in “frequency categories” such as beauty, the Minneapolis-based retailer said. Digital sales dropped 6% during the period.
Comparable sales in food and beverage were “down slightly” compared to a year ago, the retailer said, noting the impact of slowing food-at-home inflation.
“The lower inflation rate is welcome news, as it will reduce pressure on consumer budgets, making room for them to expand back into discretionary categories over time,” Target Chief Growth Officer Christina Hennington told analysts.
Revenue of $25.4 billion was 4.2% lower than a year ago, but Target’s Q3 operating income margin rate of 5.2% was 1.3 percentage points higher than in 2022.
“In the third quarter, our team continued to successfully navigate our business through a very challenging external environment,” CEO Brian Cornell said in a statement. “While third quarter sales were consistent with our expectations, earnings per share came in far ahead of our forecast … Looking ahead, we’re continuing to make investments throughout our business—in our assortment, our team and the services we offer—to provide the newness, affordability and convenience our guests want during the holiday season and beyond.”
Cornell, in a call with analysts early Wednesday, said consumers are now waiting until the last moment before making purchases due to the economic pressures they are facing, such as higher interest rates and the return of student loan payments.
“We are not satisfied with the topline trends we’ve been seeing,” he said.
The retailer didn’t express much confidence in a strong holiday sales season, reporting that it anticipates comparable-store sales in a wide range around a mid-single digit decline for the fourth quarter.
For the holiday season, Target will continue its focus on value with thousands of items under $25, he said. The retailer is looking to hire about 100,000 seasonal workers.
Target’s stock was up nearly 15% early Wednesday on the earnings results, which beat Wall Street’s estimates.
In August, Target reported its first quarterly drop in earnings in six years. The retailer has suffered from ongoing theft and violence in its stores, which prompted it to close nine stores in four states last month.
Target ended the quarter with 1,956 stores, an increase of 15 locations from a year ago.
Target competitor Walmart is scheduled to report its third quarter earnings on Thursday.