Target Stock Plunges After Weak Earnings Report Ahead of Holiday Season

The retailer’s downbeat earnings report, which included lower profit and larger inventory, fell far short of Wall Street’s expectations.

Target rattled Wall Street on Wednesday with a downbeat earnings report showing a sales decline, lower profit and an unwelcome buildup of unsold inventory. The company also cut its forecast for the full year, a bad omen ahead of the critical holiday shopping season.

Target’s stock plunged more than 21 percent for the day, a loss of nearly $12 billion in market value and its biggest slide in two and a half years.

Sales at Target stores last quarter fell 1.9 percent from the same period last year, offset somewhat by a 10.8 percent rise in online sales. The company said it expected sales to be flat this quarter and cut its forecast for full-year profit, almost entirely reversing an increase announced just three months ago.

Jim Lee, Target’s chief financial officer, told analysts on a call that it was “prudent to take this conservative approach” and that the company would take “swift and disciplined action to position ourselves to win during the holidays and in 2025.”

Target had recently made improvements that drew shoppers to its stores, but the earnings setback suggests that there is more work to do. Brian Cornell, Target’s chief executive, said in a statement that the retailer was navigating through “a volatile operating environment.”

The weaker-than-expected report covered the period of back-to-school shopping and Halloween, which can signal more challenges during the crucial final weeks of the year. Retailers look to those seasonal events as indicators of how shoppers might spend around Thanksgiving and Christmas.

Target’s results stand in sharp contrast to its rival Walmart, which reported stronger-than-expected earnings on Tuesday and upgraded its full-year forecast.

Analysts have warned that strength at Walmart, considered a bellwether of the state of the U.S. consumer because of its size and the wide range of products it sells, could not necessarily be taken as a sign of things to come for the retail industry in general. Walmart’s low prices and investments in delivery and online sales have helped it attract shoppers across the income spectrum.

Target’s troubles have come as it focuses on cutting prices to win over shoppers squeezed by inflation. Last month, the company said that it would lower prices on more than 2,000 items, including Crisco vegetable oil, cat litter and a Bluey toy fire truck, and that it would have to cut prices on 10,000 items by the end of the year. Although the number of visits to Target increased 2.4 percent last quarter, the average amount that customers spent decreased 2 percent.

Mr. Cornell noted that the retailer had faced some “unique challenges” last quarter. In an attempt to get ahead of the strike by port workers on the East Coast, the company had stocked up on inventory earlier in the quarter. Walmart also noted that the strike had affected its sales and profits.

On the call with analysts, Target’s executives described a “deceleration” in sales for high-margin discretionary categories, such as apparel and home décor. They also said consumers were not purchasing expensive products like televisions, instead opting for smaller and more affordable items to spruce up their living rooms, like candles and vases.

Customers are responding to the current economic environment by pulling back on certain purchases, Target executives said on the call. But that will change, Mr. Cornell insisted.

Compared with Walmart, Target is more exposed to discretionary categories and runs a smaller grocery business, which reliably brings shoppers in on a regular basis. Discretionary categories make up 50 percent of Target’s business. About 60 percent of Walmart’s business is groceries.

“We know the home category will rebound over time,” Mr. Cornell said. “We know that America is going to buy sporting goods and toys, so there’s some macro, short-term headwinds that we got to embrace and understand.”

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