Target Net Plunged 50%, Weak Guidance for Holiday-Quarter

Scott Peters
16 Nov, 2022
New York City

Target Corp plunged 13.4% to $154.79 after the retailer said third quarter earnings fell, lowered its fourth quarter outlook and estimated weak holiday sales.

Sales in the third quarter ending on October 29, 2022 increased 3.3% to $26.1 billion from $25.3 billion a year ago.

In the quarter, net earnings plunged 52.1% to $712 million from $1.49 billion and diluted earnings per share fell to $1.54 from $3.04 a year ago.

Comparable sales in the third quarter increased 2.7% on top of 12.7% in the previous year's period, driven by 1.4% increase in store traffic and 1.3% increase in average ticket.

Target plans to cut costs between $2 billion and $3 billion over the next three years, and the company sees opportunities to improvement efficiency after sales surged 40% since 2019. 

Third quarter gross margin declined to 24.7% from 28.0% and operating margin fell to 3.9% from 7.8% a year ago.  

Gross margins declined after the company was forced to deal with more inflow of goods and rising activities in distribution centers. 

Higher markdowns rates, inventory shrinks and merchandise costs and freight rates also affected gross margin. 

 

Inventories 

Inventories rose at a slower pace to $17.1 billion at the end of the third quarter from $14.96 billion a year ago. 

The company blamed $400 million lost in revenue on organized retail crime. 

 

Cash Flow 

Third quarter cash flow from operating activities plunged to $552 million from $5.6 billion a year ago .

Free cash flow turned to negative $3.77 billion from positive $3.1 billion a year ago. 

 

Outlook 

The retailer lowered its expectations for top line and bottom line as families struggle with rising gasoline prices and higher food costs and inflation. 

The company said sales softness is likely to persist in the fourth quarter and forecasted comparable sales to decline in "low-single digit" and operating margin to decline around 3%.  

 

Dividends and Stocks Repurchase 

The quarterly dividend payout increased to $497 million from $440 million a year ago, reflecting a 20.0% increase in the dividend per share  offset by fewer outstanding shares. 

The company did not repurchase any of its shares in the quarter and still has about $9.7 billion available for purchase in its stock repurchase program. 

 

Retail Network 

The company operated 1,941 stores at the end of the third quarter compared to 1,924 a year ago. 

The number of stores with more than 170,000 square feet was unchanged at 274 from a year ago. 

The number of stores with an area between 50,000 and 169,999 square feet increased to 1,522 from 1,515 a year ago.