Target intends to spend up to $5 billion this year improving online shopping, renovating 175 locations, and adding a drive-up option for returns as part of its expansion of customer services.
The Minneapolis-based retailer announced on Tuesday during its annual investor conference as it revealed a 43% decline in Christmas quarter profits, reflecting the persistent difficulties of balancing growing expenses and more cautious consumer spending.
As inflation tightens household budgets, Target provided a guarded prognosis for the year. But, the retailer outperformed Wall Street estimates for the fourth quarter, and its shares increased by more than 3% in early trading, reversing an earlier sell-off.
Target’s more conservative 2023 projections follow last week’s dimmer projections from Walmart and Home Depot.
Although inflation has been softened in recent months, Americans are still feeling the effects of higher prices for everything from groceries to petrol.
The Federal Reserve’s campaign to slow down spending and the economy is one of the reasons inflationary pressures have subsided, at least in some areas.
These initiatives raise credit card costs, which could harm retailers.
But American spending habits are also evolving. Compared to the pandemic, more people are spending money on travel and dining out, which may indicate that they are shopping less.
Home Depot predicts growth for that indicator to be essentially flat this year compared to a year ago, while Walmart said it expected sales at stores opened at least a year to gain 2% to 2.5% for the year for its U.S. division.
Target anticipates that comparable sales for the entire year will fluctuate between a low single-digit drop and a low single-digit growth from stores open at least a year and online channels.
In a prepared statement, CEO Brian Cornell stated, “We’re planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating climate.
Target’s overall comparable sales increased 0.7% year over year in the fourth quarter. Increased foot traffic contributed to it, but consumers now spend money on necessities like food and paper towels rather than discretionary products like clothing.
The profit margin on groceries is often substantially lower.
According to Cornell, the company had a “quite solid inventory position” before the year began, indicating its cautious approach to discretionary items.
In the fourth quarter, inventory in areas like fashion was around 13% lower than a year earlier.
Because it relies more on luxuries like clothing and home furnishings than other big box shops,
Target has suffered more damage to its business. Groceries account for more than 50% of Walmart’s U.S. business, compared to 20% at Target.
The retailer’s profit decreased in the fourth quarter in a row. Target reported third-quarter profits down by 52%, second-quarter profits down by 90%, and first-quarter profits down by 52%.
Target issued a warning at the beginning of June, stating that it was canceling supplier orders and sharply reducing prices due to a noticeable shift in American consumers’ buying patterns.