Target Q3 2022 Earnings: It's Ugly Out There.
Target Q3 2022 Earnings: It's Ugly Out There.
Wow this is a complex and tricky environment for a multi-category retailer. Mixed is the operative word.
* Comparable sales up 2.7% (compared to WMT 8.2%)
* 3.9% operating margin due to theft (!) and extra inventory issues. Less than Walmart 4.8%, still not a great look for Target.
* Digital comp sales 0.4%, despite strong curbside.
* Just look at this sample of warning words from TGT (!!):
-- "rapidly softening discretionary demand" (apparel/home/hardlines)
-- no demand in discretionary without markdowns. "guests expecting more promotions than ever"
-- "elevated uncertainty"
-- "no 2023 guidance, we aren't focused on it yet"
-- "consumers increasingly stressed"
-- expected $600M impact lost due to retail crime networks this year. alternative is to make things inconvenient for guests (lockups I guess)
-- fuel costs still double 2019 and globaly shipping and container rates still 3x 2019, though declining.
-- Q3 got worse as it went along, softening increased and it persists into November ("consistent with October")
-- after Target / Amazon discounts early October, things decelerated
-- operating income declined 50% y/y in Q3
* Electronics, Sporting Goods the worst.
* Capex will settle at $5.5B this year.
* some guests are opting for smaller pack sizes to save absolute dollars. some guests are opting for large pack sizes for a greater unit value.
On the positive side:
* unit share gains in all 5 core merchandise categories. Despite Target's challenges, they are winning against some other retailers. (though it seems not Walmart)
* % inventory in discretionary categories 10% less than Q2 and lower than 2019 (I guess on % basis)
* double-digit growth in beauty and food and beverage
* container rates and global shipping rates down one-third in recent months.
* looking to identify $2-3B in operational savings in next few years (everyone is saying things like this now) - higher scale creates opportunities.
* Owned brands are outperforming national brands two to one.
Why too much inventory?
- one-third of issues is inventory arrived "3 weeks too early" (added cushion to lead times based on last year), and
- global supply chain got faster
Some commentary from me:
Q4?
* Sounds to me like the business is decelerating into Q4.
* Marketplace seems 'lost in the shuffle' of this business. Inventory and category demand mix and optimizing costs is the primary priority.
* Some of the inventory issues seem like unforced errors, although these things are fluid.
* Mentioned stolen items showing up on "online marketplaces" (guess which ones?) lol
* Buckle in for a bumpy ride if you have > 20% discretionary exposure. Macy's has been "immune" so far.
* Target's digital business is 20% of total retail.
* Roundel ad business ("other" revenue) increased only 9.5%. This seems like a huge missed opportunity relative to other large retailers.
