By Uday Sampath Kumar
(Reuters) – Target Corp forecast a surprise drop in holiday-quarter sales on Wednesday, blaming surging inflation and “dramatic changes” in consumer behavior for a drop in demand for everything from toys to home furnishings.
The big-box retailer’s shares, which rose 4% on Tuesday following upbeat quarterly results from rival Walmart Inc, fell 14% in premarket trading.The U.S. retailer, which also announced that third-quarter profit had halved, said it would launch a cost-cut plan to save $2 billion to $3 billion over three years.
The company declined to disclose more specific details but said layoffs or a hiring freeze are not part of its current plans.
A pullback in consumer spending has hit Target the hardest among major retailers as its product mix weighs more toward discretionary items such as clothing and home furnishing, prompting it to discount heavily to clear excess inventory.
Even with those discounts and the inflation rate easing in October, Target executives said consumers were rapidly giving up discretionary purchases to focus on household essentials.
“It was a precipitous decline (in discretionary demand), and frankly, we’ve seen those trends in the early part of November as well,” said Christina Hennington, Target’s chief growth officer. “It’s really prudent for us to make sure that we have … a more conservative posture going into the fourth quarter.”
Target also halved its operating margin rate forecast for the fourth quarter to about 3% and said it was expecting comparable sales to fall in the range of a low single-digit percentage. Analysts had expected a 3.1% rise, according to Refinitiv IBES data.
In contrast, Walmart, which dedicates most of its shelf space to groceries and other daily essentials, raised its full-year sales and profit forecast on Tuesday.
However, Walmart warned that its customers could slow spending, especially in general merchandise categories, in the holiday quarter.
Target’s adjusted profit nearly halved to $1.54 per share in the third quarter ended Oct. 29.
(Reporting by Uday Sampath in Bengaluru; Editing by Anil D’Silva)
