Target lowered its profit forecast due to shopper savings. Will ChatGPT help?

American retailer Target has worsened its annual profit forecast, facing a decline in sales due to cautious customer behavior. The company hopes that the integration of new tools with artificial intelligence will help to increase demand: in this respect, the retailer is trying to keep up with its competitor Walmart. Investors and analysts are not too convinced of Target's good prospects so far.

Target expects its adjusted earnings per share for 2025 results to be in the $7 to $8 range: the upper bound has decreased from its previous forecast of $7 to $9. The new range means Targe's earnings are likely to be down from its 2024 result of $8.86 per share.

The retailer also reported a 1.5% decline in quarterly sales, with revenue coming in at $25.27 billion, while analysts were expecting $25.32 billion, according to LSEG data cited by CNBC. The company attributed this to volatile spending by shoppers and their desire to seek better deals. At the same time, Target reiterated its forecast for holiday season sales: it still expects them to decline by a few percent.

Target's adjusted earnings per share for the third quarter came in at $1.78 versus expectations of $1.72, CNBC writes, citing LSEF. The company's net income fell about 19% to $689 million. Comparable sales, which exclude one-time factors like store openings or closings, fell 2.7%.

Target's acting CEO Michael Fiddelke, in a call with investors after the report, declined to say when he thinks the company's sales will return to growth, CNBC writes. He said Target will increase investment next year to try to bring back sales growth and improve its stores. Capital expenditures will rise to $5 billion - a 25% increase from a year earlier.

The company's shares fell 3% in early trading on Nov. 19, but then slowed to about 0.7%. The papers are now 70% cheaper than they were at the record high level reached in 2021. The papers are pressured by negative comparable sales and loss of market share in favor of biggest rival Walmart, which is investing heavily in technology to speed up delivery of groceries and household goods, Reuters notes.

During its third-quarter earnings call with reporters, Fiddelke talked about Target's Trend Brain tool, a generative artificial intelligence system that helps the company's designers and merchandisers track popular colors and styles, CNBC writes. Target also uses "synthetic audiences" - AI-based models that mimic how real customers might react to products or marketing campaigns before they are launched.

In addition, the company said it is preparing a joint project with OpenAI that will allow customers to make purchases in the ChatGPT app. The beta version is scheduled to be launched next week: it will allow users to buy several products in a single transaction, select products and the method of receiving the order.

AI adoption is the beginning of a broader trend in retail, Mary Hines Drosh, head of consumer and small business products at Bank of America, said in a statement to Yahoo Finance. "We see this segment growing in the future as people become more comfortable using such tools. We will be watching closely to see how this new technology develops and is utilized," she said.

It's important for Target to keep up with another major U.S. retailer, Walmart, which announced a partnership with OpenAI back in mid-October, CNBC notes. However, the exact details of how it will work have not yet been revealed.

BofA Securities said Target has growing "long-term risks to sales and margins" due to slowing online revenue, lack of scale in digital advertising and an underdeveloped marketplace for third-party sellers. The retailer is also under "increasing" pressure from duties, price competition, product matrix and threats from Walmart and Amazon, MarketWatch wrote.

"Target continues to struggle to navigate the volatile consumer spending environment, and third-quarter results failed to build on the little progress of the prior period. This underscores that a true recovery is still a long way off, and incoming CEO Michael Fiddelke has a tough job ahead," Reuters quoted Emarketer analyst Skye Kanavis as saying.

The most popular analyst recommendation on Target shares is "hold": they have 22 Hold ratings out of 40 total, MarketWatch shows. Another 11 analysts advise "buy" (Buy and Overweight), while seven advise "sell" (Underweight and Sell).

Target's sales have actually been standing still for about four years, CNBC notes. The company is facing stiff competition and losing ground in those areas that used to set it apart from others: a wide assortment, well-organized stores and friendly, attentive service, the channel writes.

Last month, Target announced it was laying off 1,800 corporate employees, the largest round of layoffs in a decade. Target also changed its online order processing strategy in stores to free up more time for employees to checkout merchandise and help shoppers.

This article was AI-translated and verified by a human editor