Target Corporation shares fell over 21 percent on November 20, closing at $121.72, a new one-year low, after its third quarter 2024 financial results, reflecting comparable sales growth driven entirely by traffic and strength in the digital channel, came in well below Wall Street expectations. The issue was also that of guidance for holiday shopping season.

The Target issue stands in sharp contrast to rival Walmart, which beat estimates just a day earlier and signaled a solid start to the key shopping season.

Investor Business Daily (IBD) reported that a few Wall Street firms said that Target appears to keep losing share to Walmart after Walmart CEO Doug McMillon told analysts that households earning more than $100,000 made up 75 percent of the retail behemoth’s share gains.

Is the bloom off the Target rose? Will upper middle class women start pronouncing target as it is spelled instead of with a French accent? Target may not only be losing share to Walmart in this new economy, but also to the like of TJX brands Marshall’s and TJ Maxx, and even Dollar General as higher-income shoppers now wear the TJ Maxx sage with honor and talk about being a “DG Girl.”

Target reported comparable sales increased 0.3 percent in the third quarter, reflecting a comparable store sales decline of 1.9 percent and a comparable digital sales increase of 10.8 percent.

Total revenue of $25.7 billion in the third quarter was 1.1 percent higher than last year, reflecting a total sales increase of 0.9 percent and an 11.5 percent increase in other revenue.

Third quarter gross margin rate was 27.2 percent, compared with 27.4 percent in 2023, said to reflect higher digital fulfillment and supply chain costs due to the cost of managing higher inventory levels, increased digital sales volume, and new supply chain facilities coming online, partially offset by lower book to physical inventory adjustments and the net impact of merchandising activities as compared to the prior year.

Third quarter SG&A expense rate was 21.4 percent of sales in Q3 2024, compared with 20.9 percent in Q3 2023, reportedly reflecting the combined impact of higher costs, including higher team member pay and benefits and higher general liability expenses, partially offset by disciplined cost management.

Third quarter operating income of $1.2 billion was 11.2 percent lower than last year. Third quarter operating income margin rate was 4.6 percent of sales in Q3 2024, compared with 5.2 percent in the 2023 Q3 period.

Target reported third quarter GAAP and Adjusted earnings per share (EPS) of $1.85, compared with $2.10 per share in 2023. Adjusted EPS, a non-GAAP financial measure, excludes the impact of certain discretely managed items, when applicable.

Wall Street analysts had expected Target to deliver earnings of $2.30 per share on sales of $25.88 billion. It was the biggest EPS shortfall in two years, according to FactSet.

“I’m proud of our team’s efforts to navigate through a volatile operating environment during the third quarter. We saw several strengths across the business, including a 2.4 percent increase in traffic, nearly 11 percent growth in the digital channel, and continued growth in beauty and frequency categories. At the same time, we encountered some unique challenges and cost pressures that impacted our bottom-line performance,” said Brian Cornell, chair and CEO, Target Corporation. “Looking ahead, our team is energized and ready to deliver the unique combination of newness and value that holiday shoppers can only find at Target, and we remain confident in the underlying strength and fundamentals of our business, and our ability to deliver on our longer-term financial goals.”

Guidance
For the fourth quarter, the company now expects approximately flat comparable sales and GAAP and Adjusted EPS of $1.85 to $2.45, well below analyst targets of $2.65, and translating to a full year expected GAAP and Adjusted EPS range of $8.30 to $8.90 per share.

Target cited continued weakness in discretionary sales, which include things like apparel and consumer electronics, as well as costs tied to the short-lived ports strike, according to IBD.

Interest Expense and Taxes
The company’s third quarter 2024 net interest expense was $105 million, compared with $107 million last year.

Third quarter 2024 effective income tax rate was 21.7 percent, compared with the prior year rate of 21.3 percent, reflecting lower discrete benefits in the current year.

Capital Deployment and Return on Invested Capital
The company paid dividends of $516 million in the third quarter, compared with $507 million in Q3 last year, reflecting a 1.8 percent increase in the dividend per share.

The company repurchased $354 million of its shares in the third quarter, retiring 2.4 million shares of common stock at an average price of $147.43. As of the end of the quarter, the company had approximately $9.2 billion of remaining capacity under the repurchase program approved by Target’s Board of Directors in August 2021.

For the trailing twelve months through third quarter 2024, after-tax return on invested capital (ROIC) was 15.9 percent, compared with 13.9 percent for the trailing twelve months through third quarter 2023. The increase in ROIC reflects higher operating income, partially offset by higher average invested capital. The tables in this release provide additional information about the company’s ROIC calculation.

Image courtesy Target Corporation