Business

Why Target Investors Were Nervous Thursday Morning


What happened

Shares of Target (NYSE: TGT) slipped Thursday, falling as much as 3.8%. As of 12:10 p.m. ET today, the stock was still down 3.5%.

While the general market malaise undoubtedly put pressure on the stock, news that the retail store was kicking off the holiday shopping season early had investors thinking.

So what

In a press release, Target announced its plans for the all-important holiday shopping season. The company said it will start offering discounts on merchandise “sooner than ever” this year, starting with its “biggest Target Deal Days event,” taking place October 6-8. holiday deals on must-have items and everyday essentials.”

The company is also extending its Holiday Price Match Guarantee, from October 6 to December 24. The deal provides that if Target lowers the price of an item purchased later in the season, the retailer will match the lower price.

On a related note, Target said it plans to hire 100,000 seasonal employees to handle increased holiday shopping demand at its stores and supply chain facilities. That’s about the same number of seasonal workers the company hired at this time last year.

Now what

Given the state of the overall economy, investors are no doubt eyeing the ramifications of a longer holiday shopping season. Past deals, higher discounts and increased competition will likely continue to weigh on already strained operating margins.

When Target announced its second-quarter results, the company said lower operating margins were the result of tighter gross margins and price cuts to reduce excess inventory. At the same time, management said it has reduced its exposure to discretionary categories and invested more in fast-moving items.

Inflation has eased somewhat, but remains near 40-year highs, forcing consumers to make tough decisions at stores and gas pumps. A longer shopping season and deeper discounts could attract more holiday shoppers, but it’s a double-edged sword, also increasing pressure on margins. As a result, target investors could end up with coal in their lows.

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Danny Vena has no position in the stocks mentioned. The Motley Fool fills positions and recommends Target. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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