Target stocks trade lower as tight gross margins disappoint

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Customers shop at a Target store in Chicago.

Scott Olson / Getty Images

Actions of


Target

were down nearly 5% on Wednesday after the retailer’s third-quarter profits and sales beat Wall Street estimates, due to in-store foot traffic.

The company, whose shares were around $ 254, also raised its sales guidance for the fourth quarter, following other retailers who raised their sales guidance on Tuesday amid strong demand.

Target (ticker: TGT) earned adjusted $ 3.03 per share in the quarter on sales of $ 24.61 billion. Same store sales increased 12.7%.

Investors, however, had some issues with the company’s gross margin reduced to 28%, which was below the consensus of 30%, and voiced those concerns when the company’s results were announced. Target noted that the drop was largely due to wage increases in its supply chain and higher inventory costs due to inflation.

“I think you see in the third quarter the result of some very specific investments that we have made,” CFO Michael Fiddelke said on the call. “And the most important of those investments is an investment to make sure we have a great stock position going into the fourth quarter. “

But these results were not enough to keep the stock dynamic. The reduction in gross margin was likely the cause of the stock decline, DA Davidson analysts wrote in a note on Wednesday.

“With investors more focused on gross margin than compensation, the stock is down a bit,” analysts wrote. “We would buy this weakness. “

Analysts polled by FactSet expected Target to report third-quarter earnings of $ 2.82 per share on revenue of $ 24.6 billion.

A year earlier, the company was making $ 2.79 per share on sales of $ 22.6 billion.

The distributor has raised its sales forecast for the last quarter of the year. He now expects high single-digit to low double-digit same-store sales growth, compared to a previous estimate of high single-digit sales growth.

Other analysts were not as enthusiastic about the results. Jefferies, who assesses inventory at Hold, cited the same skepticisms about how long supply chain impacts would influence Target’s gross margins.

Target’s profits follow those of its biggest rival


Walmart,

which posted better-than-expected third quarter earnings thanks to early vacation spending.

Write to Logan Moore at [email protected]


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