We are devoting a lot of real estate in this newsletter to Target’s recent 3Q22 commentary as we believe this provides very important insight for our readers. This report of a dramatic downturn in consumer spending managed to reverse last week’s mid-term relief rally.
Sales Performance
- 3Q22 comps increased +2.7% y/y on top of +12.7% a year ago & +20.7% during 3Q20.
- Traffic increased +1.4% y/y (a good thing) on top of +12.9% during 3Q21.
- However, during the first 2 months of 3Q22, comps were up +3% before deaccelerating to under +1% in October. Further, October’s sales softened dramatically during the 2nd half of the month with a much higher promotional mix during that time.
- Target’s preliminary November results are in-line with October trends, and according to 3rd party research, the general merchandise categories for the entire industry contracted by -14% during the first week of November (reflecting that double-digit increases in food & beverages are driving a very significant change in shopping behavior with consumers now shopping very carefully on a budget).
Consumer Commentary
- Target reports that consumers are feeling increasing levels of stress, driven by persistently high inflation, rapidly rising interest rates & an elevated sense of uncertainty about their economic prospects. While many consumers have relied on borrowing or savings to manage their weekly budgets this year, these options are starting to run out.
- Consumers are finding it increasingly difficult each week as more of their household budget goes towards the needs of the family (primarily food), which limits the amount available for discretionary purchases.
- Resultantly, Target’s guests are exhibiting increasing price sensitivity, becoming more focused on & responsive to promotions and more hesitant to purchase at full price.
- Some guests are trading into smaller pack sizes, opening price point options or owned brands to reduce their spending on a single trip. Others are opting for larger pack sizes or stocking up when items are on promotion, knowing they will receive greater per unit value.
- The NY Fed recently reported that household debt climbed to $16.51 trillion at the end of 3Q22, up +2.2% over 2Q22 as mortgage balances rose by +$282 billion q/q to $11.67 trillion and credit card debt grew +15% y/y (the largest increase in 20+ years).
- Walmart recently reported that it is picking-up trade-down sales from the $100k+ demo.
Increased Thefts
- Target reported a $400MM loss from theft for the YTD period through 9/30/22 as organized retail crime has spread from some localized geographies to expanding circles. The stolen goods are often sold online.
Supply Chain Costs
- Container rates in global shipping have come down by about 1/3 in recent months & management expects to see further reductions in those rates going forward as they remain about 3x higher than Target was paying in 2019.
- Domestic transportation rates have declined since the beginning of the year but remain higher than a year ago & double 2019 rates.
- Fuel costs, which are a major driver of its domestic transportation expense, are still running 2x+ 2019 levels despite having moderated in recent months.
Follow us on LinkedIn, Twitter, Facebook, and YouTube!
Disclaimer of Liability
