The headline here is that Target got hit in the chin this quarter as they lowered their 2023 guidance due to consumer pressures. This is made worse by the fact that just last quarter Target reaffirmed its guidance, which means that it may not have a clue what the consumer is doing right now.

Last quarter the company had flat comparable sales growth overall, and in Q2 it declined 5.4%. Why did this happen? Well we find the answer in the next comment.

Target’s operating margin rose to 4.8 percent, compared with 1.2 percent in 2022. But slightly off the Q1 operating margin of 5.2%.

What’s going on?

Well same-store retail comparable sales declined 4.3%, and surprisingly same-store digital comparable sales 10.5%.

Make no mistake, Target is decelerating in this economy. It reminds me of the performance of the major shipping carriers right now, declining volumes.

It seems to me like Target has stopped chasing the discounters altogether and volume is suffering as a result. They have taken the UPS approach to this recession is that they plan to be here for the long-term and are willing to trade revenue and traffic but not margin.

Another datapoint that tells this story is gross margin rose year over year from 21 percent to 27 percent. At this point you could call Target the anti-discounter.

In the long-term, I do not worry about Target. It’s still a fantastic retailer and its merchandising team did not get dumber in the last 6 months. That said, they are steadily losing share and who knows how long consumers will keep trading down to off-price (and others) and how long this interest-rate and inflation driven economic environment will persist?

Who knows indeed.

As far as the test of 2023, Target expects a mid-single digit decline in comparable sales for the rest of the year, which means that Target thinks share declines will not accelerate. This logic is a little puzzling, but mid-single digits does have a potentially wide range.

Target’s results right now are highly sensitive to food and beverage and essentials inflation. If this accelerates even more, Target and many other retailers could miss by an even wider margin than they predict currently.

A few other tidbits:

* Target’s few positives included its drive-up and same-day business which grew 4% and 7% respectively.

* During the first five months of this year, our stores saw a 120% increase in theft incidents involving violence or threats of violence.