Target cuts outlook as new CEO bets on stores, tech
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Target reports its quarterly earnings on Nov. 19. Photographer: David Paul Morris/Bloomberg via Getty Images
Target's incoming CEO Michael Fiddelke plans to cut prices and invest billions in stores and technology to fight a slump that forced the retailer to trim its profit outlook for the year on Wednesday.
Why it matters: Fiddelke's turnaround plan will test whether Target can invest its way out of declining sales.
- With shoppers still trading down and discretionary sales weakening, the longtime insider is betting that design, efficiency and value can bring back growth.
Driving the news: Target reported a 1.5% sales decline to $25.3 billion in its latest quarter, and said profit margins narrowed as shoppers spent less on discretionary items.
- Comparable-store sales fell 3.8%, the Minneapolis-based retailer said, marking another period of declines as it wrestles with weaker discretionary spending. Analysts polled by FactSet had expected same-store sales to fall 2.1%.
- "If you're frustrated with our recent performance, we are too, and our entire team is working incredibly hard to return to growth and live up to our full potential," Fiddelke, Target's current chief operating officer, said during Wednesday's earnings call with analysts.
- The company also announced a partnership with OpenAI that will launch a Target app in ChatGPT in beta next week — timed to Black Friday week, one of the year's biggest shopping periods.
By the numbers: Digital sales rose 2.4%, driven by more than 35% growth in same-day delivery through Circle 360, its paid membership program.
- Non-merchandise revenue — from ads, memberships and marketplace — jumped 18%.
- Food, beverage, toys and sporting goods grew, while home and apparel lagged.
State of play: Fiddelke — who takes over in February — told reporters on a media call that he's betting a mix of sharper value, refreshed stores and new technology will stabilize the business and bring shoppers back. A 20-year veteran with Target, he has been an executive vice president since 2019 and in his current role since last year.
- Target plans to spend $5 billion next year — a 25% jump — to accelerate store remodels and open new large-format locations, Fiddelke said.
- The company is also evolving its "stores-as-hubs" model to improve same-day fulfillment and expand next-day shipping to more than half of U.S. households.
- "You'll see more change across the whole chain this year than you've seen in several of the last years," Fiddelke said, noting "we'll take it a year at a time."
Zoom in: Executives said shoppers remain "choiceful," prioritizing gifts and essentials while cutting back on décor and big-ticket items.
- "We think the consumer will prioritize what goes under the tree versus what goes on the tree," said Rick Gomez, Target's chief commercial officer.
- To keep value top of mind, Target has cut prices on 3,000 everyday items and stocked thousands of toys under $20.
What's next: Officials said they expect sales to decline by the low single digits in percentage terms in the current quarter. Analysts had expected sales to fall less than 1%.
- The company now projects adjusted earnings of $7 to $8 per share for the full year, versus a prior range of $7 to $9 a share.
Target shares are down 35% this year, dramatically underperforming the retail sector and broader markets.
- The stock was down sharply pre-market, but has since fluctuated between gains and losses in early trading.
Editor's note: This story has been updated with additional information throughout.
