Retailer launches effort to boost efficiencies and cut costs

MINNEAPOLIS — Target Corp.’s shares fell in early trading on Wednesday, after the company reported softening sales and a drop in earnings for its fiscal third quarter.

Target reported that its comparable sales increased 2.7% in the quarter, on top of 12.7% growth in last year’s quarter. That performance was led by growth in such frequency businesses as Beauty, Food and Beverage and Household Essentials, which offset continued softness in discretionary categories. The company said its third quarter operating margin rate of 3.9% improved meaningfully compared with the second-quarter results, but fell far short of expectations. Target added that it had lowered its topline and bottom-line expectations for the fourth quarter in the face of an increasingly challenging environment.

“In the third quarter, our business delivered comparable sales growth of 2.7%, and we saw unit share gains across all of our core merchandise categories,” Target chairman and CEO Brian Cornell said in a statement.  “This performance demonstrates the durability of our business model which continues to serve our guests and drive loyalty despite the challenging economic environment. In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty. This resulted in a third-quarter profit performance well below our expectations.

“While we’re ready to deliver exceptional value for our guests this holiday season, supported by the decisive inventory actions we took earlier this year, the rapidly evolving consumer environment means we’re planning the balance of the year more conservatively. We’re also taking new actions to drive efficiencies now and in the future, optimizing our operations to match the scale of our business and drive continued growth. The strides we have made in recent years to build a truly differentiated, guest-centered retail offering, punctuated by a balanced, multi-category portfolio, positions us well to navigate in any environment. Looking ahead, we remain laser-focused on delivering the best of Target to our guests, and continuing to invest in our long-term, profitable growth.”

The company announced on Wednesday that it was undertaking an enterprise-wide effort to simplify and gain efficiencies across its business with a focus on reducing complexities and lowering costs while continuing to support its team. Target said it believes it can save a total of $2 to $3 billion over the next three years through this work. These savings will support the company’s investments in driving deeper guest engagement and long-term growth while also delivering on its profit goals. This opportunity is enabled by the rapid growth since 2019, in which Target’s total revenue has grown approximately 40%. In light of this growth, this effort is focused on fully leveraging the scale that’s been gained to best position the company to continue growing efficiently over time.

Meanwhile, based on softening sales and profit trends that emerged late in the third quarter and persisted into November, Target’s plans for the fourth quarter are centered around the expectation of a low-single-digit decline in comparable sales. The company is also planning for a fourth-quarter operating margin rate centered around 3%.