TLDR
- Target reported comparable sales fell 2.7% in Q3, worse than the expected 2.08% decline
- The company plans to invest an additional $1 billion in 2026 for store remodels, new locations, and digital improvements
- Target cut the top end of its annual profit forecast to $7-$8 per share from $9 per share
- New CEO Michael Fiddelke announced operational changes including a redesigned online order fulfillment model across 35 markets
- Shares dropped 2.1% following the earnings report, with the stock down nearly 35% year-to-date
Target shares fell 2.1% on Wednesday after the retailer reported third-quarter comparable sales dropped 2.7%. The decline exceeded analyst expectations of a 2.08% drop.
The Minneapolis-based company has now posted declining comparable sales for five consecutive quarters. The stock has lost nearly 35% of its value this year.
The results represent the first full quarter under the leadership of Michael Fiddelke, who was named CEO in August. He officially takes over the top role in February.
Target announced plans to invest approximately $1 billion more in 2026. The funds will go toward new stores, remodels, and digital business improvements.
On the earnings call, Fiddelke outlined a new operational model being tested in 35 markets. The approach redefines how stores handle online order fulfillment. Only select locations will pick and pack online orders, while other stores will stop performing that function entirely.
The incoming CEO also detailed technology upgrades coming to stores. Digital tools are being introduced to speed up unloading and stocking tasks. This frees up employees to spend more time assisting customers.
Target rolled out a generative AI-powered gift finder for the holiday season. The company is using machine learning to modernize inventory forecasting. These improvements made the top 5,000 items more readily available.
Operational Changes and Cost Cuts
Fiddelke cut 1,800 corporate positions last month. D.A. Davidson analyst Michael Baker noted it’s too early to see meaningful changes from the new CEO but observed some decisive actions during the quarter.
Total revenue fell 1.6% to $25.27 billion in the third quarter ended November 1. This figure came just below analyst estimates. Target earned $1.78 per share, beating the expected $1.72.
The company cut the top end of its annual earnings forecast by one dollar. The new range stands at $7.00 to $8.00 per share, excluding severance charges and one-time items.
Target reaffirmed its forecast for low-single-digit sales declines in the fourth quarter. The holiday quarter profit guidance ranges from $1.87 to $2.87 per share. This translates to operating margins between 4.2% and 7.7%.
Price Cuts Target Holiday Shoppers
Baker pressed management about the wide profit range during the earnings call. Target executives said the broader range was deliberate. They cited fluctuating trading conditions in the third quarter and a continued volatile environment.
The forecast factors in recent price cuts Target implemented. The company slashed prices on 3,000 everyday items in November. These include food and household staples.
Target also introduced a cheaper Thanksgiving meal kit. The moves aim to attract cost-conscious shoppers during a subdued holiday shopping season.
Consumer challenges include still-high inflation and tariff concerns. The longest U.S. government shutdown in history delayed federal pay and food-stamp benefits. These factors pushed shoppers to pull back on spending.
Home improvement chains Home Depot and Lowe’s lowered annual expectations this week. The housing market remains muted. TJX raised its annual profit target on strong demand for discounted branded goods.
Walmart reports results Thursday and is expected to benefit from the consumer slowdown. UBS analyst Michael Lasser says Walmart’s focus on cheap groceries and household essentials helped it take market share from Target. The company’s technology investments for quick delivery have also proven effective.
Target’s comparable sales have now declined for five straight quarters. The company faces pressure from weaker consumer spending and merchandising issues. Walmart continues posting growth driven by lower prices.
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