Retail Sales Stay Afloat But Target's Miss Says Otherwise
It’s a big week for retailers.
As Thanksgiving approaches and retailers mobilize for holiday shoppers, a slew of retail earnings reports are coming out – offering a glimpse into what may be ahead for the holiday season – while reports of tech layoffs loom in the background.
First the bright spot: U.S. retail sales rose 1.3% in October from the month before, after being flat in September, the U.S. Census Bureau reported Wednesday. Economists polled by Reuters had forecast sales rising 1.0%. The gain was 8.3% above October 2021.
Excluding auto dealers and gas stations, retail sales still rose a strong 0.9% last month — well above the increase in inflation, which MarketWatch pointed out gives a better picture of retail-sales trends.
However, Target’s earnings warning cast a shadow over government retail sales data.
“In the latter weeks of the [third quarter 2022], sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty,” Target CEO Brian Cornell said in a press release. “This resulted in a third quarter profit performance well below our expectations.”
Target’s net income in the third quarter fell by almost half to $712 million, or $1.54 a share, for the quarter ended Oct. 29, from $1.49 billion, or $3.04 per share, a year earlier. Adjusted earnings of $1.54 per share missed analysts expectations of $2.16. Total revenue increased 3.4% to $26.52 billion, beating estimates of $26.41 billion.
The retailer announced a company-wide plan to cut costs to the tune of $2 to $3 billion during the next three years to simplify and gain efficiencies across our business, with a focus on reducing complexities and lowering costs.
“These savings will support the company’s investments in driving deeper guest engagement and long-term growth while also delivering on its profit goals,” the company said.
Additionally, based on softening sales and profit trends that emerged late in the third quarter and persisted into November, Target said “it is prudent to plan for a wide range of sales outcomes in the fourth quarter, centered around a low-single digit decline in comparable sales, consistent with those recent trends.”
The gloomier picture Target paints for the holidays comes as Amazon started laying off employees in its corporate and tech workforce this week and Meta began reducing its team by around 13% with 11,000 layoffs planned.
Amazon began laying off employees on Tuesday, according to CNBC, with the goal of eliminating around 10,000 jobs mostly in retail, devices, and human resources, according to the The New York Times.
In a memo posted on Wednesday to Amazon’s blog, Dave Limp, SVP of Devices & Services at Amazon, said a consolidation of some teams and programs meant that some roles will no longer be required.
“We notified impacted employees yesterday, and will continue to work closely with each individual to provide support, including assisting in finding new roles,” he wrote. “In cases where employees cannot find a new role within the company, we will support the transition with a package that includes a separation payment, transitional benefits, and external job placement support.”
Limp offered advice all retailers can heed: “Having gone through times like this in the past I know that when there's a difficult economy, customers tend to gravitate to the companies and products they believe have the best customer experience and that take care of them the best.”