News built for finance pros
CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.
In Target’s third-quarter earnings call with analysts, CEO Brian Cornell gave a warm welcome to Jim Lee on “his first conference call as Target CFO.” After Wednesday’s earnings release, we wouldn’t blame the former PepsiCo executive for wishing he’d started the new job a couple months later: Wall Street punished the retailer’s worse-than-expected earnings by sending shares down by 21%.
It wasn’t just that Target failed to meet analyst forecasts, or that it lowered its profit and sales forecasts for the year, but on Tuesday, rival Walmart beat Wall Street expectations on both earnings and revenue and increased its outlook. The larger retailer, which has been drawing a growing number of wealthier shoppers, is taking customers from Target, eMarketer analyst Zak Stambor told the Wall Street Journal. Target could lose even more market share if it doesn’t increase promotions, Citi analyst Paul Lejuez wrote in a research note shared with CNBC.
Walmart makes 60% of its sales on groceries and other daily needs, while 60% of Target’s sales are for home goods, clothing, and other things that people can postpone buying when they have less to spend, Kate McShane, a Goldman Sachs analyst, told CNBC.
So if consumers are feeling squeezed by the “cumulative impact of multiple years of price inflation,” as Cornell put it on Target’s earnings call, Walmart is better positioned to keep bringing in those shoppers.
Off Target. It’s been a rough two years for Target, the Journal reported, with “sales [that] have been shrinking or flat for much of [that time],” and its strategy of “pushing its own private-label brands and cutting prices on everyday goods…hasn’t worked.” Its customers are spending less on clothes, home goods, TVs, and other nonessential items, and the extra shoppers lured in by price cuts didn’t spend enough to make up for an overall lack of volume in stores and online, the Journal reported.
Target’s attempts to hedge against a port strike in October also ate into profits. Michael Fiddelke, COO and former CFO, said the retailer stocked up to prepare for a potentially prolonged port strike in October, according to the Journal. The strike ended up lasting just three days, but the efforts “came at a cost.” On the bright side, the extra inventory meant the company was “well positioned” for the holiday season, Fiddelke told analysts on Target’s earnings call.