Target
Other negatives in the report included the company cutting its Q4 forecast and seeing its first year-over-year decline in revenue in many years. Shares are down 29% YTD, and the company's valuation has certainly improved as it sports a forward P/E of 17 which is its lowest level in many years. However, whether or not the stock turns out to be a good buy, largely depends on if this is just a blip or the start of a worrying trend.
Inside the Numbers
In Q3, Target reported $1.54 in earnings per share which were below estimates of $2.13 per share in earnings. Revenue also missed expectations at $26.5 billion vs expectations of $26.8 billion. Overall, revenue was down slightly while its net income was down 50% due to excess inventory and slower-than-expected sales into the holiday season.
After spending heavily to boost its e-commerce platform and logistics network, the company is now embarking on cutting costs by $3 billion over the next 3 years. However, it doesn't have plans for layoffs and plans to continue hiring.
The company said sales were impacted as customers cut discretionary spending and were choosing lower-margin items like food and household staples vs electronics and apparel. Shoppers are also waiting for promotions and buying smaller and generic items.
The company also sees this tough environment persisting into 2023. However, one bright spot is that its inventory problem continues to improve as it only had 14% higher inventory compared to last quarter when it had 36% higher than normal inventory. Further, supply chain backlogs have improved and freight prices have plummeted as well.
Like many other companies, its margins are also under pressure. The company historically tries to attain 6% operating margins but it was closer to 4% last quarter. Additionally, it sees operating margins in the range of 3% to 4% for 2023 as well.
