Target profits slide 19%, forecasts sales slumping through holiday shopping season

The Minneapolis company said Wednesday that it expects its sales decline to extend through the critical holiday shopping season. The company also announced that it plans to invest another $1 billion next year to remodel stores and build new ones, bringing the total cost of the renovation to $5 billion.

Investors have been punishing Target stock recently, sending it down 43% over the past year. Shares fell before the opening bell.

Overcoming a 19% profit decline last quarter is the latest challenge for incoming CEO Michael Fidelke, a 20-year veteran of the company who will replace CEO Brian Cornell on February 1. The delivery comes as the retailer tries to reverse ongoing sales disruption and revive its reputation as the place to go for affordable but stylish products.

Target’s problems stand in stark contrast to rival Walmart, the nation’s largest retailer, which is thriving. Walmart reports its latest quarterly performance on Thursday.

Target announced in October that it was cutting about 1,800 jobs at the company in an effort to streamline decision-making and accelerate initiatives to rebuild its declining customer base. The cuts represent about 8% of Target’s workforce.

To increase sales, Target is introducing more than 20,000 new items, double what it was last year, and is lowering the prices of thousands of food, beverages and essential items.

“We have high but achievable aspirations for Target’s future, and we are moving with urgency to make changes and investments,” Fedelke told reporters on Tuesday.

With about 1,980 U.S. stores, Target has struggled to find its footing since inflation caused restless shoppers to cut back on their discretionary spending. Customers have complained of clutter in stores with merchandise that doesn’t reflect the extravagant appearance but is reasonably priced, which has long earned the retailer the joking luxury nickname “Tarzhay.”

A consumer boycott since late January, when Target joined rival Walmart and a number of other prominent American brands in scaling back its corporate diversity, equity and inclusion initiatives, has exacerbated the impasse.

Retailers have spent nearly 11 months dealing with president Donald Trump’s sweeping tariffs on imports and his crackdown on immigration that have threatened to shrink the supply of workers.

The just-ended 43-day federal shutdown is expected to be another drag on the economy, though its full impact will take months to measure. The process of awarding government contracts has slowed and many food aid recipients have seen their benefits interrupted.

Fedelke told reporters that the company saw weakness in September, but said it was “difficult for us to isolate” the different factors behind that.

The retailer’s profits fell to $689 million in the three-month period ended Nov. 1, or $1.51 per share. This compares to $854 million, or $1.85 per share, in the same period last year.

Average per share results were $1.78.

Sales fell 1.5% to $25.27 billion.

Analysts expected earnings of $1.71 per share on sales of $25.33 billion.

Comparable sales — those from physical stores and online channels — declined 2.7% in the most recent three-month period. This is worse than the 1.9% decline in the previous quarter and represents the third consecutive quarterly decline.

Sales gains in food and beverages were offset by continued weakness in discretionary goods, with anxious shoppers increasingly focused on purchasing essentials, even on holiday items. But the company said recent efforts to revamp sporting goods, toys and tech gadgets have spurred stronger sales.

During Halloween this year, customers bought candy and costumes but spent less on Halloween decorations, said Rick Gomez, Target’s chief commercial officer.

Gomez believes they will make similar swaps during the winter holiday season.

“We believe the consumer will prioritize what goes under the tree versus what goes on the tree,” he said.

Target also announced Wednesday a partnership with OpenAI that will allow users to browse Target items through the tech company’s ChatGPT app. When customers are ready to purchase, they will be directed to the Target app.

For the fourth quarter, Target expects comparable sales to decline by low single digits. For the full year, it now expects earnings per share to range from $7 to $8 per share, down from its previous forecast of $7 to $9.