Target sales deteriorate faster than expected

Add Target to the list of retailers whose weak third quarter sales performance highlighted troubling spending behaviors that threaten to undermine its holiday sales performance.

The company reported disappointing third quarter sales and profits Thursday morning and then stated the obvious that shoppers will price sensitive during an intensely competitive holiday season. The company said same store sales increased 0.9%, slightly less than the company’s forecast provided on August 21 which called for an increase of 1% to 2%.

At the time CFO John Mulligan provided that guidance he also warned that consumer spending was under pressure and the company’s full year comp increase would likely be 1%, rather than the 2% to 2.5% gain forecast earlier in the year. Similar concerns over consumer spending were expressed earlier this month when Mulligan spoke to investors in Canada and warned that Target’s longer range sales projection likely would not be realized in the time frame originally envisioned.

Then came Thursday’s bombshell that sales were even weaker than expected and the entry into Canada with 124 store caused a 29 cents a share drain on profits. Third quarter earnings declined nearly 47% to $341 million, or 54 cents a share, compared to $637 million, or 96 cents a share. As a result, the company lowered its full year profit forecast to a range of $4.59 to $4.69 per share, down from earlier guidance of $4.70 to $4.90.

“Target’s third quarter financial results reflect continued strong execution in our U.S. segment in an environment where consumer spending remains constrained,” said Gregg Steinhafel, chairman, president and CEO. “As our focus shifts to the fourth quarter, we are intently focused on delivering outstanding merchandise, an easy, fun shopping experience and an unbeatable combination of everyday low prices, weekly ad discounts, 5% REDcard Rewards and price match policies throughout the U.S. and Canada. And, in our Canadian Segment, we are also focused on improving performance as we transition from opening to operating our 124 stores.”