Target struggled in the third quarter as the retailer failed to deliver growth in either sales or profit.
The company’s net sales for the quarter ended November 1 fell 1.5 per cent to $25.3 billion, while comparable sales slid 2.7 per cent. The decline was mainly attributed to lower merchandise sales.
Profit and margins remained under pressure, with operating income down 18.9 per cent to $948 million and net income down 19.3 per cent to $689 million.
“Last quarter, the focus was on management changes at Target. This quarter, there is no such distraction, so attention goes back to Target’s miserable performance,” commented GlobalData MD Neil Saunders.
“While it is important not to over-egg the pudding, it is fair to say that Target is really struggling and does not seem to be able to climb out of the hole it has dug itself into,” he added.
The analyst described the decline in both top and bottom lines as a twofold problem, creating a “doom loop” where the investments needed to boost demand are shunned because of profit concerns.
Saunders said that Target has not been able to properly direct its investment, which has, over time, resulted in “a slipshod experience” for shoppers.
“Issues like out-of-stocks, messy stores, long wait times, and locked-up products all push consumers away from Target and into the hands of rivals. They also mean that good initiatives – like collaborations with Stranger Things or this year’s Marks & Spencer holiday treats – go from being great ideas on the drawing board to a lacklustre mess in stores,” he said.
According to the analyst, solving these issues is neither fast nor straightforward. A step like moving away from store-based fulfilment, which puts pressure on inventory and associates, is sensible, and plans to improve design efforts and inject more newness into ranges are extremely important, he said.
“Admitting there are fixes to be made is something of a breath of fresh air from Target, and it will allow Michael Fiddelke to start his tenure as CEO on the right foot.
“However, the scale and complexity of the issues should not be underestimated, and it is going to take Target years to get fully back on track – especially if the consumer economy tightens,” he added.
For the fourth quarter, the company continues to expect a low-single digit decline in sales.
“The good news in all of this is that Target is not a completely broken brand. There is still a lot of affection for Target from customers,” Saunders said.
“However, that goodwill only stretches so far, and if Target does not remedy its errors soon, it will drive more customers away, and the task of rebuilding will become much more of a challenge,” he added.
