<mediadc-video-embed data-state="{"cms.site.owner":{"_ref":"00000161-3486-d333-a9e9-76c6fbf30000","_type":"00000161-3461-dd66-ab67-fd6b93390000"},"cms.content.publishDate":1668629794416,"cms.content.publishUser":{"_ref":"00000168-ed7d-d9d9-a9ec-ff7daffb0002","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"cms.content.updateDate":1668629794416,"cms.content.updateUser":{"_ref":"00000168-ed7d-d9d9-a9ec-ff7daffb0002","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"rawHtml":"
var _bp = _bp||[]; _bp.push({ "div": "Brid_68623860", "obj": {"id":"27789","width":"16","height":"9","video":"1187157"} }); ","_id":"00000184-8215-d5ff-a7af-9edffe740000","_type":"2f5a8339-a89a-3738-9cd2-3ddf0c8da574"}”>Video EmbedTarget is warning about a weaker-than-usual holiday shopping season after its earnings plunged and its stock took a beating.
The retail giant announced on Wednesday that its third-quarter profit fell by more than 50% as it grappled with surging inflation and clearing through its unwanted inventory. The company warned that it could be a sign that this holiday season will fall short of expectations for retailers.
“As we look ahead, we expect the challenging environment to linger beyond the holiday season and into 2023,” Chief Financial Officer Michael Fiddelke said during a call with reporters.
HOLIDAY TROUBLE: INFLATION AND RECESSION FEARS DING SEASONAL HIRING
News of the missed earnings sent Target’s stock plummeting. As of Wednesday afternoon, Target’s stock had shed more than 13% of its total value in the hours following the announcement. The loss continues the declines felt by the retailer over the past 12 months as it grapples with high inflation. Its stock has fallen by more than 41% in the last year alone.
The Wednesday news from Target pulled down other stocks as well, with the Dow Jones Industrial Average and S&P 500 closing in the red. The tech-heavy Nasdaq fell by about 1.5%.
“Consumers are feeling increasing levels of stress driven by persistently high inflation, rapidly rising interest rates, and a sense of uncertainty about their economic prospects,” CEO Brian Cornell said during an earnings call.
“With high rates of inflation continuing to erode their purchasing power, many consumers this year have relied on borrowing or dipping into their savings to manage their weekly budgets,” he added.
Inflation, as measured by the consumer price index, was 7.7% in the 12 months ending in October, well above the Federal Reserve’s preferred 2% level but also down from this year’s high of more than 9%.
Target’s gloomy third quarter news comes after the retail giant’s profits were down nearly 90% in the second quarter. Net earnings were just $183 million, according to the store. At the same time last year, it reported net earnings of $1.8 billion.
Retailers are hoping that the holiday season will be a shot in the arm for the industry, which has had to contend with customers cutting back purchases in light of the country’s red-hot inflation.
Seasonal hiring has slowed this year compared to years past, according to consulting firm Challenger, Gray & Christmas. That is one sign that retailers are expecting this year’s holiday season to be less robust than many had hoped.
By mid-November of last year, companies had announced 940,300 seasonal hires, according to the firm. So far this year, though, companies have only announced just 592,400 seasonal hires for the holiday season, a 37% decline.
“Companies may be reluctant to announce their seasonal hiring plans, even if they do intend to hire, due to economic uncertainty. Some may not want or need to make a hiring push right now,” said Andrew Challenger, senior vice president at the firm.
Average real earnings, or how much people are able to take to the bank when inflation is included in the equation, have been declining since early last year. Median weekly real earnings have fallen nearly 4% since the end of 2020.
The decline in average real earnings means consumers have less money to use to buy Christmas presents, purchase food for the holidays, and spend on holiday travel.
Another factor that is causing some anxiety among both retailers and consumers is the prospect of a recession.
The Fed has been driving up interest rates aggressively to fight inflation, but the unfortunate side effect of that action is that the economy slows down. While Fed Chairman Jerome Powell is trying to tamp down inflation while avoiding a recession, many economists assess that as an increasingly unlikely proposition.
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The timing and magnitude of a recession are up for debate, but recent economic modeling by Bloomberg and the Conference Board has forecast the odds of a recession in the next 12 months as a near-certainty.
Retailers, fearing an economic downturn, may hesitate to bulk up their workforces and buy up inventory out of fear that a recession is right on the horizon.
