Target Stock Plunges: Earnings Miss and Reduced Guidance Spark Sell-Off

Target's stock price took a significant hit on Thursday morning, dropping more than 20% at last check, following the company's third-quarter earnings report. The retailer missed analysts' expectations for both revenue and earnings, leading to a sharp decline in its share price. Here's a closer look at the factors contributing to Target's stock price drop and the potential impact on its long-term growth prospects.



Earnings Miss and Reduced Guidance

Target reported revenue of $25.7 billion, missing the expected $25.9 billion, and earnings per share (EPS) of $1.85, missing the expected $2.30 (Yahoo Finance). The company also reduced its full-year guidance to a midpoint of $8.60 per share, shy of the $9.35 per share it previously offered and well below the $9.55 per share expected by analysts (CNBC).

Analyst Downgrades and Market Sentiment

Following the earnings report, Citigroup analyst Paul Lejuez downgraded Target to the equivalent of a hold, reducing his price target to $130 per share, citing "very poor results." This downgrade reflected the broader sentiment among analysts, who were disappointed with the company's earnings miss and reduced guidance. The market reacted negatively to Target's earnings miss and reduced guidance, with the stock dropping about 21.6% as of 12:40 p.m. ET on the day of the earnings release.



Softness in Discretionary Categories and Inventory Costs

CEO Brian Cornell pointed to "softness in our discretionary categories" as one primary source of the quarter's shortfall. The company also incurred costs associated with accelerating inventory purchases in anticipation of the port workers strike last month (Target's earnings call).

Long-Term Growth Prospects

Despite the earnings miss and reduced guidance, Oppenheimer analysts remain optimistic about Target's long-term growth prospects. They highlighted the company's digital efforts, store investments, merchandising success, and partnerships with other brands/retailers as key drivers of long-term growth. Target's comparable digital sales grew 10.8% year over year, indicating the strength of its digital channel (Source: Oppenheimer analysts' report, October 19, 2023).

Target's ability to deliver newness and value during the holiday season, as well as its disciplined inventory management, can also help drive sales and profitability. The company plans to offer more than 10,000 new items for the holidays, with thousands of exclusive-to-Target items across many categories (Source: Target's third quarter 2023 earnings release, November 20, 2023).

In conclusion, Target's stock price drop on Thursday morning was driven by a combination of factors, including an earnings miss, reduced guidance, analyst downgrades, and negative market sentiment. While the short-term outlook may be challenging, Target's long-term growth prospects remain strong, supported by its digital efforts, store investments, exclusive brands, and disciplined inventory management. As the market digests the recent developments, investors will be watching closely to see if Target can regain its footing and continue its long-term growth trajectory.