Target shares sink as holiday outlook squeezed by ‘stressed’ consumers

Target forecast a surprise drop in holiday-quarter sales on Wednesday, blaming surging inflation and "dramatic changes" in consumer spending for a drop in demand

Target Corp forecast a surprise drop in holiday-quarter sales on Wednesday, blaming surging inflation and “dramatic changes” in consumer spending for a drop in demand for everything from toys to electronics.

Shares of the big-box retailer fell more than 17 per cent in early trading after it also said an early start to holiday season promotions and shoppers holding back for steeper discounts cut its third-quarter profit by half.

Target said it would launch a cost-cut plan to save $2 billion to $3 billion over three years, but declined to disclose specific details. It, however, said mass layoffs or a hiring freeze are not part of its current plans.

“Clearly it’s an environment where consumers have been stressed,” Target Chief Executive Officer Brian Cornell said.

A pullback in consumer spending has hit Target the hardest among major retailers as its product mix weighs more toward discretionary items such as clothing, home furnishings and electronics, prompting it to discount heavily to clear excess inventory.

Even with those discounts and the inflation rate easing in October, Target executives said consumers were rapidly giving up discretionary purchases to focus on household essentials.

“It was a precipitous decline (in discretionary demand), and frankly, we’ve seen those trends in the early part of November as well,” said Christina Hennington, Target’s chief growth officer.

Target halved its fourth-quarter operating margin rate forecast to about three per cent, due to expectations of bigger holiday discounts across categories, as well as a rising amount of theft and organized crime in its stores.