Target Is Tempering Expectations For The Holiday Season After Poor Q3 Earnings

Sales from Target's third quarter touched a disappointing low in October this year as consumer price sensitivity continues to rise. The dip in profits was somewhat expected by Target, as they warned investors that price mark-downs would be necessary to clear old, unwanted merchandise from the shelves (via Markets Insider). Still, Target shares dropped dramatically after the Q3 announcement, falling about 15%. The company expected to earn nearly $2.13 per share, but actual earnings fell to around $1.54.

Target investors and executives speculate that the reason for declining sales is consumers spending less on "wants." Due to the current state of inflation and economic uncertainty, shoppers have been more cautious about where their dollars go — and every dollar counts. When customers are more focused on needs like groceries, gasoline, housing, and interest payments, they spend less on items like apparel, electronics, and home goods. American's real disposable income — the money left over after taxes, inflation, and necessities — has continued the fall in the past year (via Business Insider). As we speed ahead into the holiday season, Target anticipates that shoppers' tight budgets will continue to affect their earnings.

Target has still anticipated a peak in shopping around the holidays, but profits likely won't be as high as in past years. Surveys indicate that people are planning to buy fewer gifts this year and spend less on gifts in general. Most people planned to buy about 16 holiday gifts in 2021, but this year they plan to buy nine (via The Street). With soaring inflation and an overwhelming abundance of home clutter, Americans may also lean towards giving more handmade, experiential, and practical gifts this year.

How will companies manage this year's likely drop in expected holiday sales? Target plans to make significant budget cuts in the realm of $2 to $3 billion over the next three years, according to Markets Insider. Although this seems like a dramatic cut in expenses, the company claims that it doesn't plan to lay off employees or halt the hiring process. It's possible that Target will try to reign in spending on freight shipping, fuel, and inventory transportation, but the public won't know more details until Target's annual investor meeting in March of 2023. As for maintaining the holiday spirit during Q4, Target ensures consumers that plenty of budget-friendly and giftable items will still be available on shelves this year.