By Siddharth Cavale
(Reuters) -Target's third‑quarter results on Wednesday are expected to lay bare the retailer’s struggles amid mounting economic uncertainty, and as cash-strapped Americans slashed discretionary spending during the prolonged government shutdown.
Target has not reported any same‑store sales growth this year, as bigger rival Walmart takes market share with its focus on essentials and fast delivery. Persistent inventory missteps, and understaffed and disorganized stores have cost Target.
And its push into delivery and e-commerce has stumbled.
Analysts estimate comparable sales - from online channels and stores open for at least 13 months - fell 2% in the three months through October, according to LSEG estimates. Overall revenue is projected to be flat at $25.33 billion, while earnings per share likely declined to $1.72.
“When the shekels are tight, Americans aren’t going to spend as much on what Target has to offer," said Charles Sizemore, a Target investor.
Credit and debit card sales at Target during the quarter fell 2.8%, according to D.A. Davidson, a steeper drop than the 2.6% decline in the previous quarter. The brokerage expects Target to narrow its full‑year profit forecast of $7.00 to $9.00 per share towards the "very low" end of the range.
The record U.S. government shutdown delayed federal pay and food-stamp benefits, rattling consumers ahead of the holiday season. The Congressional Budget Office estimated the shutdown could cost the economy up to $14 billion.
TASK AHEAD FOR INCOMING CEO
UBS analyst Michael Lasser said Target is still losing market share and he expects the company to slightly miss expectations on comparable sales. The stock, though, could hold up since it is already priced low.
Target trades at 12 times forward earnings, a 25% discount to its 10-year average, he noted. Walmart, in contrast, trades at 35 times.
Target’s shares have tumbled 41% this year, including a 16% drop since August, when the retailer surprised investors by appointing company veteran Michael Fiddelke as its next CEO instead of hiring an outsider.
Fiddelke, currently chief operating officer, will take over in February. He has promised to improve merchandising and guest experience both in-store and online, and invest in technology, but analysts and investors say a key challenge for him is to define an identity for Target - will it be a low-budget chain, a convenience store, or a true competitor to Walmart and Amazon?
“It is just losing out,” said Louis Navellier, chief investment officer at Navellier & Associates, a former Target stockholder. Inventory management should be a top priority for Fiddelke, Navellier said, noting that Target’s core customer, the middle‑class shopper, was going to Walmart for groceries and essentials.
Fiddelke, though, is already taking steps to right the ship. Last month, he said the company had "too many layers" that slowed decisions, as he announced 1,800 corporate job cuts, Target's first major layoff in around a decade. The company announced price cuts on 3,000 pantry and household goods last week.
Jefferies analyst Corey Tarlowe said giving Fiddelke the top job was an “underappreciated catalyst,” saying these moves could narrow price gaps with rivals, boost store visits, and strengthen private-label sales that make up a third of Target’s revenue.
(Reporting by Siddharth Cavale in New York; Editing by Sayantani Ghosh and Muralikumar Anantharaman)
