"Stress": Target profits collapse by 52 percent

“Stress”: Target profits collapse by 52 percent

Target has announced that its US arm saw profits fall 52 percent in the September quarter, and warned that it also expects its holiday sales to fall year-over-year.

The cost-of-living crisis had prompted “dramatic changes” in consumer spending, according to the retailer, which lost its shares 17 percent in early trade and still 13.4 percent later in the day.

That caused its shares to drop to $155 and wiped around $23 off the share price on the New York Stock Exchange by the close after it reported its struggles.

“In the last few weeks of [September] In the quarter, revenue and earnings trends weakened significantly as guest shopping behavior was increasingly impacted by inflation, rising interest rates and economic uncertainty,” said Brian Cornell, Target chairman.

“This resulted in third-quarter earnings performance that was well below our expectations.”

Target revealed the crisis meant its holiday season promotions started earlier as shoppers desperate for discounts, which helped its third-quarter profits to be halved.

The retailer is now considering embarking on a cost-cutting plan to save between $2 billion and $3 billion over the next three years, but gave no details on that, though said layoffs and a hiring freeze are not among current measures.

Mr Cornell said “it’s an environment where consumers have been stressed” which has caused them to “withdraw” their spending, with the retailer offering mostly discretionary goods such as clothing, home furnishings and electronics which it has been forced to discount to grant to clear the inventory.

“Target makes its money from discretionary spending, so the environment is hitting harder,” said Bill Smead, chief investment officer of Smead Capital Management, which owns nearly $209 million in shares in the retailer.

Operating income for the third quarter of 2022 was $1 billion, down 49.2 percent from $2 billion in 2021.

However, there was a surge in sales in beauty, food, beverage and household items.

“This achievement demonstrates the durability of our business model, which continues to serve our guests and foster loyalty despite the difficult economic environment,” said Mr. Cornell. “We saw dramatically divergent trends in the quarter, then a slowdown in October and the mix of sales leaned toward promotional items.”

But he added that consumers have become more cautious.

“Many consumers are running out of options,” he added. “They respond to promotions. The second and third quarters fell well short of our expectations. The guests have moved away from full-price purchases.”

Pressure on the cost of living has also meant the retailer has seen a rise in theft, Mr Cornell said, prompting more training for staff to combat it during the holidays.

“As we look to the future, we remain focused on bringing our guests the best of Target and continue to invest in our long-term, profitable growth,” said Mr. Cornell.

Target has also indicated that it expects sales to fall in the holiday quarter as U.S. consumers grapple with rising credit, energy and food costs.

Expenditures also increased to $125 million in the third quarter, up from $105 million year-over-year.

Retailers in Australia are also struggling in certain sectors.

Retail sales of clothing, footwear and personal accessories fell 2.3 percent, or $68.1 million, in August, down 2.3 percent, after two consecutive increases, according to the Australian Bureau of Statistics.

Retail giant Wesfarmers, which owns companies including Bunnings, Kmart and Target, also saw annual profits fall in Australia in its reports to the market in August.

It reported net profit after tax of A$2.35 billion for fiscal 2022, down 2.9 percent.

Wesfarmers chief executive Rob Scott said the slump was due to disruption caused by Covid-19, but the group’s profits rose in the second half of the financial year as lockdowns were lifted.

“The group’s retail businesses are well positioned as cost of living pressures impact household budgets and value for customers re-emerges,” it said in August.

“Retail companies will continue to focus on meeting customers’ evolving needs and delivering even greater value, quality and convenience.”

Results from Kmart, which also included Target and online retailer Catch, saw sales fall 3.5 percent to A$9.13 billion and profit fell 39.7 percent to A$418 million in 2022.

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