Jim Cramer’s take on Target’s Q3 earnings print

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Target Corporation (NYSE: TGT) opened over 15% down this morning after reporting a disappointing third quarter and giving weak guidance for the future.

Jim Cramer reacts to the earnings report

A 2.7% annualised growth in comparable sales in fiscal Q3 was better than 2.2% expected.

But Target Corporation warns of a slowdown over the holiday quarter even though retail sales on Wednesday were reported “up” 1.3% for October (better than expected).

It’s calling for a low-single-digit percentage decline in its fourth-quarter same-store sales versus analysts at a 3.1% increase instead. Reacting to the earnings print, Jim Cramer said:

If the consumer has slowed, a company that’s a little bit more expensive than Walmart Inc – Target Corporation could get hurt.

Remember that the Fed is still indicating intent to further lift rates (read more), which improves the possibility of a recession and a slowdown in consumer spending. So, investors interested in buying Target stock on the weakness should consider that macro landscape as well.

On the earnings call, the big box retailer said organised retail crime has resulted in a $400 million hit to its gross profit this year. On CNBC’s “Squawk Box”, Cramer added:

October was a weak month and it’s interesting to see that it’s been a bad November too. At the same time, the amount of stealing at Target Corporation is a little disconcerting.

Target stock down on a sharp decline in profit

Net income was $712 million – down from $1.49 billionPer-share earnings were cut nearly in half to $1.54  EPS was unchanged even when adjusted for one-time itemsRevenue went up 3.4% year-over-year to $26.52 billionConsensus was $2.16 a share on $26.41 billion revenue

Despite the beat on revenue, Target Corporation took a 320 basis points hit to gross margin as cost of sales jumped 8.1%. Inventory was up 14.4% versus the same quarter last year but that was still a significant improvement from 36.1% in the prior quarter.

Following the retail news, Target stock is now down about 40% versus its year-to-date high.

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