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A rush to import goods before a shortlived dockworker strike this autumn contributed to a sharp decline in profits at Target, in results that underscore how the labour stand-off affected the US economy.
The US retail chain on Wednesday reported a 12.1 per cent year-on-year drop in third-quarter net profit to $854mn. Analysts surveyed by Visible Alpha had been expecting a rise in earnings to more than $1bn.
Executives pointed to weakness in sales of discretionary products and cost pressures during the period as the company lowered profit guidance for the current fiscal year, reversing a rise to the outlook made in August.
The disappointment reflected in part Target’s efforts to secure goods before members of the International Longshoremen’s Association walked off the job on October 1, freezing container ports from Maine to Texas.
The union ended the strike in three days when it agreed to temporarily extend its contract with shipping lines until January 15.
Importers accelerated deliveries or rerouted them to west coast ports in preparation for the strike, adding warehousing and transport costs, according to the National Retail Federation.
Michael Fiddelke, Target’s chief operating officer, said his company had brought in some products sooner than usual to ensure they would be available for the holiday shopping season. “When we take in product early, that means we hold it a bit longer, we usually touch it a bit more. That comes at a cost, both in our distribution centres and our store back rooms,” he said.
The costs of handling the inventory surge added to a lacklustre quarter for Target. Comparable sales rose 0.3 per cent, below estimates of a 1.4 per gain. Sales from stores open at least a year declined 1.9 per cent, even as comparable digital sales rose 10.8 per cent.
The results came a day after Walmart, Target’s biggest competitor, blew past estimates with US comparable sales growth of 5.3 per cent.
Walmart’s chief executive Doug McMillon said the financial impact of the port strike and two hurricanes that devastated parts of the US south had been relatively modest.
Target ended the quarter on November 2 with $15.2bn in inventory, up 2.9 per cent from a year ago. “We feel very good about our inventory position going into the quarter,” said chief executive Brian Cornell.
Target has said it will cut prices for more than 2,000 items during the holiday shopping season, including food and essentials as well as gifts.
Similar discounts on thousands of items this year helped revive sales growth after a slump that lasted more than a year following negative reactions to Target’s Pride Month displays in 2023.
In its latest quarter, Target said the number of transactions had risen 2.4 per cent from a year before but customers paid 2 per cent less per transaction. Revenue rose 1.1 per cent to $25.7bn in the quarter, slightly less than estimates.
