Target Just Learned the Hard Way That Epic Holiday Sales Mean Nothing If You're Not Making Bank…

Target’s Q4 sales forecast is up 1.5%, but the profit outlook? Flat as a pancake. Despite record-breaking sales on Black Friday and Cyber Monday, the Minneapolis-based retailer is learning the hard way that deep discounts might bring shoppers through the door, but they won’t help pay the bills.

(Source: Giphy) 

For starters, Target saw a solid boost in holiday traffic, both online and in stores, with comparable sales climbing 2% over the November-December period. Digital sales alone jumped nearly 9%, and same-day delivery orders skyrocketed 30%. Good, right? Wrongo. 

See, while the tills were ringing, the profit margins were shrinking. Apparently, Americans weren’t impulse-buying scented candles and overpriced throw pillows—they were hunting for deals. Target’s gotta move those unsold Taylor Swift books somehow, even if it means slashing prices harder than a post-Christmas clearance bin.

(Source: CNBC) 

The result saw Target’s earnings-per-share guidance stuck in neutral: $1.85 to $2.45 for Q4, with full-year EPS expected to land between $8.30 and $8.90. Translation: All that hustle for holiday sales couldn’t save their bottom line. Additionally, if you thought Target was the only one caught in the discount trap, think again. Retailers across the board have been reporting better-than-expected holiday sales, but investors are shrugging harder than me when my wife tells me to take out the trash. 

For instance, Macy’s sales were in line with low-end projections, no ticker pop. Nordstrom? Raised its guidance, but nobody cared. Even Lululemon, which we talked about earlier this week, failed to move the needle. Turns out, the market isn’t easily impressed when profits are stuck in the mud.

(Source: Investing.com) 

Especially considering Target’s holiday secret weapon was price cuts, and lots of them. From diapers to cold medicine, the company slashed prices on over 10,000 items throughout the season. That’s great news for consumers, but it’s a nightmare for margins. And while discretionary categories like toys and apparel saw a big boost (thanks, Santa), they also tend to be the first to hit the clearance rack. You know what doesn’t go on sale? Milk and toilet paper. But those essentials don’t exactly scream “high margins,” either.

When it comes to the bigger picture though, holiday spending did rise an average of 3.6% from 2010 to 2019, and while this year’s numbers are better than feared, shoppers are still budget-conscious. Inflation may be cooling, but no one’s out here making it rain unless there’s a sale tag involved. Meaning, the question now is whether Target can keep the momentum going without endless promotions.

(Source: Giphy) 

Plus, to add to the mess, Target’s executive team is playing musical chairs. Two senior leaders are retiring, and the company’s bringing in some fresh faces to steer the ship. Chief Stores Officer Mark Schindele is out, Adrienne Costanzo is in. Chief Information Officer Brett Craig is also retiring, with Prat Vemana stepping up to the plate.

Meanwhile, CEO Brian Cornell, who agreed to stick around for three more years, is still holding the reins (presumably because he’s trying to figure out how Target can make sales growth actually profitable before his exit). 

(Source: Yahoo Finance) 

The bottom line? Target pulled off a holiday sales win, but the lack of profit growth has investors turned off more than the last guy in line at the Bonnie Blue event. However, with record-breaking Black Friday and Cyber Monday numbers, the potential is there—but those razor-thin margins are a buzzkill.

For now, Target’s leadership shake-up and relentless focus on deals are keeping them in the game. But if they can’t turn traffic into profits, they may find themselves stuck in the discount aisle for a while. Stay tuned for their full Q4 earnings report on March 4, when we’ll see if their strategy pays off—or if it’s just more markdowns ahead. In the meantime, do what you will with this information and as always stay safe and stay frosty, friends! Until next time…

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Stocks.News does not hold positions in companies mentioned in the article.