Weak signals of softening in consumer spending in the United States. Target Corporation's same-store sales in Q3 were below expectations, leading to a downward revision of the full-year profit forecast.

Target Corporation (TGT.US) has announced its financial performance for the third quarter. The company's earnings for the third quarter exceeded the average analyst forecast, but key retail metrics - such as same-store sales growth - were lower than expected. Q3 revenue decreased by 1.4% year-on-year to $25.3 billion, in line with expectations. Non-GAAP earnings per share were $1.78, higher than expected. Same-store sales in the third quarter decreased by 2.7%, below the market's expected decline of 2.1%. Q3 operating profit decreased by 18.9% to $900 million. Excluding one-time items, operating profit was $1.1 billion. Target Corporation's gross margin decreased by 10 basis points to 28.2%, reflecting the pressure on product sales due to expanded price reductions, but this pressure was partially offset by growth in advertising and other revenues, reduced inventory losses, and improved supply chain and digital distribution efficiency. Looking ahead, Target Corporation has lowered its profit forecast for 2025, indicating that its efforts to return to profitability will take more time as the large retail enterprise faces challenges from price reductions and soft demand in key product categories. The company now expects earnings per share for the year to be between $7 and $8, excluding certain items, compared to the previous guidance of $7 to $9. Target Corporation repurchased $152 million of stock in the third quarter, buying back 1.7 million common shares at an average price of $91.59 per share. As of the end of the third quarter, the company still had approximately $8.3 billion remaining under the share repurchase plan approved by the board in August 2021. In the past 12 months ending in the third quarter of 2025, the return on invested capital (ROIC) was 13.4%, compared to 15.9% in the same period ending in the third quarter of 2024. Following the performance announcement, shares of Target Corporation fell nearly 3% in pre-market trading on Wednesday. As of Tuesday's close, the stock had fallen nearly 35% year-to-date, while the S&P 500 index had risen by nearly 13% during the same period. Challenges Ahead In the past three years, weakening demand has gradually eroded the financial condition of Target Corporation. Due to inflation, consumer spending on non-essential items such as clothing, home goods, and other major revenue sources for Target Corporation has decreased. With the deterioration of the US consumer environment (due to cooling job market and inflation), this long-standing retailer is struggling to regain momentum after the boom brought about by the pandemic. Sales at Target Corporation's department stores have essentially stagnated over the past four years as it faces increasingly fierce competition and some of the aspects that previously set it apart, such as notable products, well-organized stores, and friendly customer service, have diminished. Additionally, after Target Corporation withdrew some key diversity, equity, and inclusion initiatives, some customers began to boycott the retailer, citing this as one of the reasons for the decline in sales in May. At the same time, the retailer's fashionable product offerings have also lost some appeal. As Walmart Inc. and other competitors have gained more market share by expanding their product offerings, lowering prices, and offering faster delivery services, Target Corporation's market share has declined. Chief Operating Officer Michael Fiddelke stated that the company's performance this quarter has been "volatile," leading to adjustments in its forecasts. He also pointed out that it was difficult to pinpoint the exact reasons for the business weakness. Multiple Initiatives to Drive Growth Fiddelke told reporters, "We have been tirelessly working to achieve a return to growth and are not satisfied with the current results." Fiddelke will assume the role of CEO in February next year. Fiddelke began his career at Target Corporation as a summer intern in 2003. On the day he was appointed as the next CEO of Target Corporation, he outlined three priorities: strengthening Target Corporation's reputation as a retailer of fashionable, well-designed products; providing a more consistent online and offline shopping experience; and driving business growth through technology. Target Corporation plans to increase its capital spending to $5 billion next year - a 25% increase - for store renovations, new store openings, and funding for product improvements and enhanced shopping experiences, including ensuring service quality and product availability. For example, reports have stated that Target Corporation requires employees to smile and be friendly to promote higher sales performance. Chief Business Officer Rick Gomez stated that consumers are still cautious and more focused on value for money. The company has recently reduced prices on thousands of everyday items significantly and increased the supply of lower-priced seasonal goods such as $1 decorations and $10 blankets. He said that consumers are still making trade-offs during the holidays to save on expenses, prioritizing gifts under the Christmas tree and items hanging on the tree. Target Corporation is also using artificial intelligence to optimize operations, discover trends, and enhance customer service. The retailer has partnered with OpenAI to allow shoppers to use ChatGPT on its platform, following Walmart Inc.'s lead. Target Corporation saw a 3.8% decline in brick-and-mortar same-store sales in the third quarter, but a 2.4% increase in online same-store sales. The company reported that the level of inventory shrinkage (i.e., inventory losses due to theft, damage, and other factors) has returned to pre-pandemic levels. In the US retail sector, store theft has decreased due to increased collaboration between businesses and law enforcement, more effective inventory tracking, and placing some items in locked cabinets. Last month, the company underwent its largest restructuring in a decade, cutting 1,800 jobs to reduce organizational complexity and speed up operations. This quarter, Target Corporation has shown some signs of progress. The company is working to return to its roots of creating a relaxed and enjoyable shopping atmosphere while offering competitively priced and stylish products. The "Fun101" initiative (aimed at restructuring categories such as furniture and appliances) is starting to show results. Gomez noted that toy sales increased by nearly 10%, while sales of video games, sports equipment, and music products achieved double-digit growth. Food sales also increased, benefiting from strong demand for beverages and health products. Clothing sales remained negative, but the denim clothing business expanded. With overall economic prices rising, consumers are increasingly focusing on essential everyday items.