Target cuts forecast after discounter posts its biggest earnings miss in two years

• Target missed third-quarter earnings and revenue estimates and cut its full-year guidance.
• Target struggled to drive sales even after reducing prices on thousands of items.
• The results come a day after Walmart beat Wall Street expectations and hiked its outlook.

Target on Wednesday missed Wall Street's quarterly earnings and revenue expectations and posted only a slight uptick in customer traffic, despite the discounter's price cuts on thousands of items and its early holiday sale. 

The big-box retailer reversed course and cut its full-year profit guidance, just three months after hiking that forecast. It said it expects full-year adjusted earnings per share to range from $8.30 to $8.90. That's lower than the $9 to $9.70 per share range that it shared in August and below the $9.55 a share expected by analysts, according to StreetAccount.

Target now expects fourth quarter comparable sales to be approximately flat. That metric includes sales on its website and stores open at least 13 months. 

Target missed Wall Street's earnings per share estimate by 20%, its biggest miss in two years. It also marked its first revenue miss since Aug. 2023. 

On a call with reporters, CEO Brian Cornell said "lingering softness in discretionary categories" and costs associated with rushing shipments and preparing for the short-lived port strike in October hurt the company's quarterly performance. 

Chief Operating Officer Michael Fiddelke said "it's disappointing that a deceleration in discretionary demand combined with some cost pressures have caused us to take our guidance back down after raising it last quarter." But he added that Target feels confident in its long-term outlook. 

Here's what Target reported for the three-month period that ended Nov. 2 compared with what Wall Street expected, based on a survey of analysts by LSEG:

• Earnings per share: $1.85 vs. $2.30 expected
• Revenue: $25.67 vs. $25.90 billion expected

Target, which is known for its cheap chic spin on clothing, home goods and other discretionary merchandise, has struggled to attract steady foot traffic and higher sales. Shoppers have been selective about spending after cumulative years of pricier food, housing and more. 

To woo price-sensitive consumers, Target announced in May that it would cut prices on about 5,000 frequently purchased items, including diapers, bread and milk. It announced another wave of price reductions in October on more than 2,000 items during the holiday season, including cold medicine, toys and ice cream.

Target said it will have lowered prices on more than 10,000 items this year by the end of the holiday season.

Target offered those discounts after hearing from shoppers about "the importance of value and affordability," Chief Commercial Officer Rick Gomez said. He added the price cuts on frequency items leaves more room in customers' budgets to splurge on products that they want, whether it's a new outfit or beauty item.

Yet those price cuts weren't enough to lift Target's performance in the fiscal third quarter. 

Target eked out a comparable sales gain of 0.3%, as shoppers spent more on its website but less at its stores. That fell short of the 1.5% gains that analysts expected, according to StreetAccount. 

Target's fiscal third-quarter net income tumbled about 12% to $854 million, or $1.85 per share, from $971 million, or $2.10 per share, in the year-ago quarter. Revenue rose from $25.40 billion in the year-ago period.

Customer traffic across Target's stores and website grew 2.4% year over year. Digital sales were a bright spot, growing 10.8% year over year because of double-digit gains with curbside pickup and almost 20% gains with same-day home deliveries. Comparable store sales, however, declined 1.9% year over year. 

Customers gravitated toward food and everyday essentials during the quarter, along with beauty items. Comparable sales in that category, which includes sales at Ulta Beauty shops inside of Target, grew more than 6%. Two other categories, food & beverage and essentials, posted low single-digit gains compared with the year-ago period.

The Minneapolis-based retailer's results clash with trends at Walmart, which on Tuesday reported improving sales trends in discretionary merchandise for the second quarter in a row. Walmart also said it's gaining market share among upper-income households. 

The two big-box retailers, however, have a different sales mix, as groceries account for about 60% of Walmart's U.S. business but only about 23% of Target's in the most recent fiscal year, according to the companies' financial filings.

Gomez said the retailer is contending with savvy and selective shoppers who aren't willing to buy until the price is right. 

"Consumers have become increasingly resourceful and strategic on how they shop," he said. "They know deals are out there. They're willing to search for them, and they'll wait for the exact right moment to head into our stores or log on to our app."

For example, Gomez said the week ahead of Target's Circle Week, a promotional event in October, was quieter. But it was the biggest Circle Week to date in terms of sales, and 3 million new members signed up for Target's loyalty program, he added.

Gomez said Target is seeing momentum when it offers eye-catching merchandise, such as debuting new workout gear, pet accessories, seasonal flavors of food or a fresh hair care line.

Higher supply-chain costs posed another challenge in the quarter, Fiddelke said. As the company geared up for the port strike, which wound up lasting only a few days, Target rerouted and rushed shipments and loaded up on inventory to make sure it had the merchandise that it needed for the holiday season. 

"That came at a cost," he said. "It meant we were fuller a little bit earlier in the quarter than we would like to be, and we're never quite as efficient when our buildings are full, but we felt like that was the right decision to really protect the guest experience."

Shares of Target have lagged behind the S&P 500. As of Tuesday's close, Target's stock is up about 9.5% this year, compared to the S&P 500's approximately 24% gains during the same time period. The company's stock price of $156 is also well off the pandemic highs, when its stock rose to nearly $270.

– CNBC's Robert Hum contributed to this report.