Quarterly profit slide at Target hints at a challenging holiday season for the retailer

Target reported a 19% drop in third-quarter profit as the retail giant continues to struggle with attracting inflation-weary shoppers. The Minneapolis-based company warned Wednesday that its sales slump is expected to persist through the critical holiday shopping season, further challenging the retailer’s efforts to regain its footing in a competitive market.

The announcement comes as Target prepares for a leadership transition, with 20-year company veteran Michael Fiddelke set to replace current CEO Brian Cornell in February. Fiddelke will inherit a company facing significant headwinds, as comparable sales fell 2.7% in the latest quarter, marking the third consecutive quarterly decline and worsening from the 1.9% drop reported in the previous period.

“The environment around us continues to evolve, whether it’s shifting consumer demand, changing competitor dynamics, or broader macroeconomic pressures,” Fiddelke said during Wednesday’s earnings call. “But let me be clear. We are not waiting for conditions to improve. We are driving the change ourselves right now.”

As part of its turnaround strategy, Target announced plans to invest an additional $1 billion next year for store remodels and new location development, bringing the total makeover cost to $5 billion. The retailer is also introducing more than 20,000 new items—double last year’s number—and has reduced prices on thousands of grocery and essential items to lure back price-conscious consumers.

Target’s struggles stand in stark contrast to rival Walmart, which continues to thrive in the current economic environment. Walmart is scheduled to report its quarterly results on Thursday, likely highlighting the diverging fortunes of the two retail giants.

In October, Target eliminated approximately 1,800 corporate positions—about 8% of its corporate workforce—in an effort to streamline decision-making and accelerate company initiatives. The cost-cutting move reflects the urgency with which Target is approaching its recovery efforts.

With roughly 1,980 U.S. stores, Target has faced multiple challenges since inflation began forcing Americans to curtail discretionary spending. Customer complaints about disorganized stores and a perceived departure from the budget-friendly yet stylish merchandise that earned it the affectionate nickname “Tarzhay” have hampered its performance.

Consumer boycotts since late January, when Target joined Walmart and other major American brands in scaling back corporate diversity, equity, and inclusion initiatives, have further complicated the retailer’s situation.

The company has also contended with broader economic factors affecting the retail sector, including the potential impact of tariffs on imports and immigration policies that could affect workforce availability. The recent 43-day federal government shutdown is expected to add another layer of economic pressure, as government contract awards have slowed and many food aid recipients have experienced benefit interruptions—both potentially reducing consumer spending at retailers like Target.

Fiddelke acknowledged a weaker September performance but noted it was “tricky for us to isolate” the various contributing factors.

For the quarter ended November 1, Target reported a profit of $689 million, or $1.51 per share. Adjusted earnings per share were $1.78, exceeding analysts’ expectations of $1.71 but falling short of the $1.85 reported for the same period last year. Sales decreased 1.5% to $25.27 billion, slightly below market projections.

The company observed gains in food and beverage categories, offset by continued weakness in discretionary goods as anxious consumers increasingly focus on essentials. Rick Gomez, Target’s chief commercial officer, noted that for Halloween, customers purchased candy and costumes but spent less on decorations, a pattern he expects to continue during the winter holidays.

“We think the consumer will prioritize what goes under the tree versus what goes on the tree,” Gomez said.

Target also announced a new partnership with OpenAI that will allow customers to browse Target merchandise through the ChatGPT app, with purchasing options directing users to Target’s app.

Looking ahead, the retailer forecasts that comparable sales will decline by low single digits in the fourth quarter. For the full fiscal year, Target has revised its earnings per share expectations to between $7 and $8, down from its previous projection of $7 to $9.

Investor reaction has been muted, with Target shares remaining essentially flat in early trading Wednesday, though the stock has declined by 43% over the past year.