• Target misses Q3 earnings expectations by 64 cents.
  • TGT stock dives 14% as company announces spending cuts.
  • Management guided for a worse Q4 than expected.

Target (TGT) stock is off as much as 14% in Wednesday's premarket after the much-watched retailer delivered a wide earnings miss for the third quarter. The $1.54 in GAAP earnings per share (EPS) was an eyebrow-raising 64 cents below the Wall Street consensus. This was a 49% decrease compared with the same quarter in 2021.

TGT stock is down 13.4% at the time of writing at $155.

Target stock earnings news

Revenue was a bright spot for the quarter, coming in $120 million ahead of analyst expectations at $26.52 billion. What really irked the market though was that management said to expect a single-digit decline in comparable sales in Q4. Basing their thesis on softening sales that emerged late in Q3 and drifted into November, management said the 3.9% operating margin in Q3 would likely be lower in Q4 with a midpoint at 3%. However, Target stated that the range around that 3% figures has grown much wider for Q4 than usual due to the environment.

That 3.9% operating margin was also exactly half of its 7.8% margin in Q3 2021. Some of this may stem from Target's strategy of reducing inventory by cutting prices aggressively over the summer and into the fall.

"In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty [and] resulted in a third-quarter profit performance well below our expectations," said Brian Cornell, chairman and CEO of Target.

In order to get back in the driver's seat and deliver against a more difficult consumer environment, Target said it will reduce spending by $2 to $3 billion over the next three years by focusing on inefficiencies and cost-cutting.

Comparable sales grew 2.7% YoY in the third quarter. This was comprised of 1.4% growth for traffic (volume) and 1.3% average ticket price growth. However, growth at physical stores grew 3.2%, while digital sales grew 0.3% YoY. This is a clear signal that Target is seeing little growth in its online segment.

Target stock forecast

With TGT stock hovering just above $155 in the premarket, shareholders as well as traders looking for bullish entries will be focused on significant support levels. The closest one appears to be $153.50, which worked as support in general on October 5 and 20 and to a lesser extent on November 9. Below there is the $145.50 support level from September 30 and October 14.

It is somewhat unsurprising that Target stock has dropped so aggressively in the Wednesday premarket since it the stock was trading near this level only five sessions ago. The Consumer Price Index coming in below expectations on November 10 lifted TGT stock along with the rest of the market, and that now seems more than a bit premature. If Target stock breaks below either of the two support levels listed, then it could plausibly move back to support from June in the range between $138 and $140.

TGT stock daily chart shows retracement from highs

TGT 1-day stock chart

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