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.