Target's earnings miss isn't about the U.S. port strike. Here's what happened
When Target’s (TGT) earnings fell drastically short of expectations on Wednesday, executives pointed to the U.S. port strike as a key factor. However, the retailer’s troubles – which pushed its stock down 21% to a one-year low – go much deeper than shipping costs and an inventory glut.
Target imported a similar number of cargo containers during the key summer months as it did in 2023, well before the strike became a major problem, as reported by CNBC (CMCSA), which cites trade data from ImportGenius, a firm specializing in the international trade industry.
During Target’s Nov. 20 earnings call, CEO Brian Cornell acknowledged that the company “faced supply chain challenges” tied to the East Coast and Gulf port strikes, but explained Target had adjusted by “changing shipment timings and rerouting deliveries to other ports,” as a way to ensure it had stock for the fourth quarter.
These changes, coupled with weaker demand in discretionary categories, led to higher-than-normal inventory levels earlier in the year, resulting in increase cost’s for the company’s supply chain, Cornell noted.
Still, imports during the summer months – especially July and August – were consistent with past years, with no major surge to suggest a rush of goods to preempt the strike. Target actually increased the number of containers arriving thorough its West Coast ports.
If the strike isn’t too blame for Target’s big earnings miss, what is? Analysts at Jefferies (JEF) said in a research note that Target misjudged consumer demand and pricing. Despite importing more goods than Walmart (WMT) by $1.2 billion, the retailer struggled to attract customers in key categories, even as shoppers increasingly turned to competitors for essentials like groceries, apparel, and personal care items.
In May, Target revealed plans to slash prices on 5,000 items, and by October, the company expanded this initiative to include an additional 2,000 products, covering categories like food, cold medicine, and baby essentials. Target said it aims to slash prices on 10,000 items during the holiday season. However, some items – like deodorant and undergarments – will remain locked behind glass shelves due to theft concerns.
While Target hasn’t traditionally been seen as a price leader, analysts told Quartz earlier this week that its emphasis on competitive pricing has helped the retailer attract more budget-conscious shoppers in today’s cautious consumer environment. That, however, hasn’t been enough to turn the tide.
Meanwhile, Target’s main rival, Walmart, reported strong quarterly earnings on Nov. 19, continuing its success, by catering to all consumer income levels –especially those with household incomes over $100,000, and who accounted for 75% of its sales this quarter.
