MARK-TO-MARKET: Target comments cloud holiday outlook

MARK-TO-MARKET: Target comments cloud holiday outlook

According to the National Retail Federation (NRF), US retailers entered the holiday shopping season this year with cautious optimism. Earlier this month, the NRF predicted sales this holiday season — the 61 calendar days in November and December — would rise 6% to 8% from 2021 to between $942.6 billion and $960 billion. .4 billion dollars. This rate was lower than the 13% growth rate recorded last year. Still, the NRF hoped shoppers would find a way to weather soaring prices to deliver a respectable holiday season for the retail industry.

But on Wednesday, Target – the nation’s seventh-largest retailer – issued a warning shot for the holiday retail outlook. Target said its July-September third-quarter earnings fell 52.1% over the past 12 months. In response, its management lowered its revenue and profit forecast for the current fourth quarter, which includes the holiday shopping season. Target also announced plans to reduce total costs by $2 billion to $3 billion over the next three years.

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Additionally, Target also provided a cautious outlook for the overall retail industry. The company said the industry had now entered “a period of rapidly slowing demand and high uncertainty”. Target President and CEO Brian Cornell noted that consumers now face a painful combination of “persistently high inflation, rapidly rising interest rates and a high sense of uncertainty about to their economic prospects.

Target’s recent woes stand in stark contrast to Walmart’s. On Tuesday, Walmart – the largest US retailer – also announced its third quarter results. Walmart surprised Wall Street by reporting better-than-expected revenue and earnings while raising its expectations for the fourth quarter. But why such a difference in financial results and prospects between these two distribution giants?

On closer inspection, much of Walmart’s strength in the third quarter came from its grocery business. Walmart offers low-cost groceries in its in-house branded stores as well as the Sam’s Club, which it owns. In fact, groceries make up 56% of Walmart’s total sales. Based on revenue, Walmart is actually the largest grocer in the country. By comparison, groceries make up just 20% of Target’s sales.

In the third quarter, budget-conscious shoppers flooded its Sam’s Club outlets looking for cheap groceries and reduced gas prices for members. In the third quarter, Sam’s Club sales increased 12.7% year-over-year as discount club membership hit an all-time high.

It is easy to understand consumer sensitivity to food and gas prices. According to the latest consumer price index, food prices have increased by 10.9% over the past 12 months. Many individual food items such as chicken (+14.5%), eggs (+43%), milk (+14.5%) and margarine (+47.1%) saw their prices rise further upper. The price of a gallon of regular gasoline increased by 17.1%.

There are still six weeks left in this year’s holiday shopping season. Whether or not Target’s sudden, bleak outlook is true remains to be seen. Final sales figures for this year’s season won’t be fully known until mid-January at the earliest. In the meantime, retailers are hoping inflation-weary shoppers will somehow find a way to deliver a successful holiday season.

Mark Grywacheski is an expert in financial markets and economic analysis and is an investment advisor at Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed in this document are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell securities at any particular price. The information has been obtained from sources believed to be reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment adviser with the United States Securities Exchange Commission.

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