Target cuts 2025 profit forecast, shares fall 2%

Target Corp. trimmed its profit forecast for the 2025, signaling that its turnaround push is going to take more time as the big-box retailer deals with markdowns and soft demand in key merchandise areas.

The company now expects earnings per share, excluding some items, of $7 to $8 this year, cutting the high end of its previous forecast. By that same measure, third-quarter results surpassed the average of analyst estimates, but the key retail metric of comparable sales contracted more than expected.

“We are relentless in our pursuit of returning to growth and not satisfied with our current results,” Chief Operating Officer Michael Fiddelke said on a call with reporters. Fiddelke is slated to become chief executive officer in February.

The shares fell 2% at 6:33 a.m. in early trading in New York. The stock has declined nearly 35% this year through Tuesday’s close, versus an advance of almost 13% for the S&P 500 Index.

The storied retailer is struggling to recapture growth following its pandemic boom. Target is facing a tougher consumer economy weighed down by a cooling job market and inflation. It has also been hit by boycotts spurred by a pullback in diversity initiatives.

Fiddelke, who started his career at Target as a summer intern in 2003, has pledged to sharpen the company’s focus on style while improving shopping experiences and using technology more effectively.

The company experienced “choppiness” across its business during the quarter, Fiddelke said, and is adjusting its forecast as a result. He added it’s been difficult to pinpoint specific drivers for the softness.

Target plans to increase capital spending to $5 billion next year — a 25% increase — to remodel stores, open new locations and fund improvements to merchandise and the shopping experience. This includes making sure service is friendly and products are in stock.

“While there’s still work to do, we are moving in the right direction,” Chief Commercial Officer Rick Gomez said. Consumers remain selective and are prioritizing value, he said.

The company recently cut prices on thousands of essentials and expanded its offering of lower-priced seasonal items such as $1 ornaments and $10 throws. Shoppers will continue to make trade-offs during the holiday season to save money and they’ll “prioritize what goes under the tree versus what goes on the tree,” he said.

Elsewhere, the retailer is using artificial intelligence to enhance operations by using the technology to spot trends and improve customer service. Target said it’s partnering with OpenAI to allow shoppers to use ChatGPT on its platform, following rival Walmart.

Target reported that shrink — inventory lost due to theft, damage and other factors — is back to pre-pandemic levels. Across retail, shoplifting has diminished as companies collaborate with authorities, track inventory more effectively and put some products behind locks.

The company conducted its first major restructuring in a decade last month when it eliminated 1,800 roles to remove complexity and move faster.

Weak demand has steadily eroded Target’s financial performance over the last three years. Inflation-strained consumers are spending less on clothes, home products and other discretionary items that account for the majority of Target’s sales.

At the same time, its trendy assortment, which gave the retailer its “Tarjay” moniker, has lost some of its allure. Market share has declined as Walmart Inc. and other competitors gain ground with expanded assortments, lower prices and speedy shipping times.

‘Fun101’

There were some signs of progress during the quarter, as Target seeks to return to its roots of creating a lighthearted atmosphere with competitively-priced, stylish products.

The company’s “Fun101” initiative – an effort to revamp merchandise categories such as furniture and appliances – is starting to yield growth. Toy sales rose nearly 10%, while video games, sporting equipment and music sales grew in the double digits, Gomez said.

Food sales also grew, thanks to strong demand for beverages and wellness items. Apparel sales were still negative, though the denim business expanded. Consumers are increasingly focusing on essential goods amid higher prices across the economy.