November 16, 2022

5 minute read

 

Target ($106B in annual sales) reported its third quarter results this morning, signaling deteriorating consumer demand, particularly in October.

 

It is anticipating a very promotional holiday period, particularly in discretionary categories that have seen significantly lower demand than Target expected entering the third quarter.  Expectations were already low, and for the company to be incrementally surprised is a warning signal to the broader retail ecosystem.

 

Shares are down meaningfully today as the company gave guidance for 4Q comps to decline in the low single digits (investors had expected low single digit comp growth) and operating margins of 3% (investors expected more than double that).

 

In response to continued margin pressure, Target announced a new initiative to find $2-3B in cost savings through process improvements. While management expressed the efficiency gains aren’t at the exclusion of driving growth, the near-term results, in combination with other retailers’ outlooks, suggest a much slower growth environment ahead.

 

Read on for a summary of Target’s results and how to adapt to its evolving environment.

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