by Uday Sampath Kumar
(Reuters) – Target said on Wednesday it expects a surprise drop in sales for the holiday quarter, blaming runaway inflation and “dramatic changes” in consumer spending.
The retailer’s stock fell more than 13% in pre-market trading. News of its third-quarter profit decline also put pressure on shares of other U.S. retailers.
The company said it would launch a cost-cutting plan aimed at saving $2-3 billion (€1.92-2.88 billion) over three years, without giving further details.
She clarified, however, that layoffs or hiring freezes are not part of her current plans.
“This is clearly an environment in which consumers are stressed,” said Brian Cornell, chief executive of Target.
The decline in consumer spending has hit Target the hardest among large retailers, as its product line is more focused on discretionary items such as apparel, home furnishings and electronics.
Despite steep discounts to clear inventory and a slowing inflation rate in October, Target said consumers were instead focusing on home essentials.
“It was a precipitous decline (in discretionary demand), and frankly, we saw those trends in early November as well,” said Christina Hennington, chief growth officer at Target.
“It’s really prudent for us to make sure we have … a more conservative position for the fourth quarter,” she added.
Target also halved its fourth-quarter operating profit margin forecast to around 3% from a Refinitiv estimate of 3.1%, and said it expects comparable sales to decline mid-single digit. (“low single digit”).
(Reportage Uday Sampath in Bangalore, French version Dina Kartit, edited by Kate Entringer)
Copyright © 2022 Thomson Reuters