Target CEO ‘guides for some conservatism’ as retailer misses earnings estimates ahead of holidays

A few months after hinting that a retail shakeup is on the way, Target ( TGT ) offered a miss on the earnings day from start to finish.

On Wednesday, the retail giant sorely missed Wall Street forecasts for the third quarter, lowered expectations for the full year after raising it the previous quarter and took a cautious stance on holiday sales and profits.

Its shares sank 16% in premarket trading on the heels of the release of its quarterly results.

In contrast, its rival Walmart ( WMT ) again beat expectations — by a lot — on quarterly same-store sales results, online sales growth and the overall narrative for investors, in its own report Tuesday. Target has slashed prices on food and other everyday items this year in an effort to compete.

On a call with reporters, Target executives offered little explanation for the u-turn in results, other than to note that consumers are spending “cautiously” in more discretionary departments, such as home goods. The company also felt the brunt of unplanned costs in its supply chain as it added more inventory than it sold in the quarter — never a recipe for success for a retailer.

Target’s veteran chairman and CEO Brian Cornell told Yahoo Finance that it has the “appropriate approach” for the holiday season, but is “guiding some conservatism.”

Read more: What Macy’s CEO Tony Spring said about holidays at Yahoo Finance’s Invest conference

Cornell added that the Christmas shopping season is off to a “really good start” but acknowledged that the biggest days are ahead. Walmart CFO John David Rainey told Yahoo Finance on Tuesday that it has seen a brisk start to the season.

The target stock rose 9% year-to-date ahead of the results, lagging the S&P 500’s 24% gain. Walmart’s stock is up 64% on the year.

“The stock appears limited in the near term given the uncertainty surrounding the holidays, with Target facing headwinds from a promotional/event-driven consumer and likely getting headwinds, relative to other retailers, from the favorable calendar a year ago (now a headwind), along with rates,” JPMorgan analyst Christopher Horvers wrote in a client note.

Horvers added: “As they very often do for retailers, comparable sales and gross margin matter, with the former a relatively low bar and the latter a high bar. Due to uncertainty and share losses, we see it unlikely that Target will roll forward to 2026 valuation anytime soon.”

Here’s what Target reported for the third quarter compared to Wall Street analysts’ estimates compiled by Bloomberg:

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• Net turnover: up 1.1% year over year to $25.7 billion, compared to estimates of $25.74 billion

• Gross profit: 27.2% vs. 27.4% a year ago, vs. estimates for 28.7%

• Diluted EPS: down 11.9% year-over-year to $1.85 vs. estimates for $2.30 (guidance: $2.20 to $2.40)

• Comparative sales: up 0.3% from an estimate of 1.48% (last year comparable sales fell 4.9%; Walmart US reported a 5.3% increase in the third quarter of 2024)

• Inventory grew faster than sales, up 3% year over year.

• The company repurchased $354 million of its stock in the quarter. $9.2 billion is still available for repurchase under prior authorization.

• The number of transactions increased 2.4% in the quarter, while the average transaction amount decreased 2%.

• Target ended the quarter with about $3.4 billion in cash.

• Fourth quarter earnings per per share is expected to be $1.85 to $2.45, compared with estimates of $2.65.

• Full-year earnings per per share is expected to be $8.30 to $8.90 (previously: $9 to $9.70), compared with estimates for $9.61.

Brian Sozzi is Yahoo Finance’s managing editor. Follow Sozzi on X @BrianSozzi and further LinkedIn. Tips on deals, mergers, activist situations or something else? Email [email protected].

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