Target (NYSE: TGT) shares plummeted Wednesday, closing the session down over 13% after it reported a profit decline and warned of a soft holiday quarter.
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The retailer’s profit fell around 50% in its third quarter, reporting earnings per share of $1.54, well below analyst consensus expectations of $2.13 per share. The fall was due to the company clearing through unwanted inventory. In addition, the company said softening sales and profit trends emerged late in the third quarter and persisted into November. Revenue for the third quarter came in at $26.52 billion, above expectations of $26.38 billion.
As a result of the slowdown in sales, Target said it is cutting its fourth-quarter outlook.
Following the earnings release, Wells Fargo analyst Edward Kelly lowered the firm’s price target on Target to $170 from $195, maintaining an Overweight rating on the stock. However, the analyst stated that the sell-off in Target shares “makes sense.”
He added that Target’s Q3 update “raises questions around the timing and magnitude of the bullish margin recovery thesis on the stock,” also claiming a softening in demand has begun, as sustained inflation seems to have “pushed consumers to a tipping point into the holiday season.” He continued that the company’s Q4 guidance cut suggests uncertainty is growing, and it makes sense for Target shares to “sell-off hard after its recent rally,” as there is now “considerable uncertainty” around 2023. Still, he maintains the company is a “high-quality long-term share gainer.”
Elsewhere, Gordon Haskett’s Chuck Grom told investors in a research note that it is “hard to find positives” out of Target’s earnings and guidance. Even so, he acknowledged that inventory levels are now in much better condition. Grom is also not surprised by the share price decline, and he does not anticipate a “short-covering driven snap back imminently.” Despite the negatives, the analyst, who has a Buy rating and $200 price target on the stock, added that most investors were expecting a guide down, and Target will likely exceed its forecast as inventories are in better shape and comparable trends should improve as the fourth quarter progresses.