Target's earnings plunge 52% - after it was forced to slash prices for Americans stung by inflation

Target has seen profits plunge 52 percent in the third quarter after it was forced to cut prices for Americans hurting from decades-high inflation and suffered $400 million in loss due to theft. 

CEO Brian Cornell has said that 'sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty.'

Target CFO Michael Fiddelke added that the company has lost $400 million in goods due to organized theft rings and other product loss this year as said that a tough holiday season was in store for retailers. 

'We expect the challenging environment to linger on beyond the holiday,' Fiddelke told the Wall Street Journal. 

Target shares were down nearly 15 percent in the pre-markets on Wednesday morning.

The company's struggle comes after Walmart and Dollar General boasted above average performances on Tuesday as more middle-class shoppers pinched by inflation turn to discount supermarkets for bargains.  

Despite the gloomy outlook, US retail sales rose 1.3 percent in October, according to the US Census Bureau's latest report on Wednesday, beating economist sales that it would only rise by 1 percent. 

The rise in sales shows consumers are spending more on not only gas and food, but also on furniture and cars, which have generally risen in price as a reflection of the Federal Reserves decision to hike up interest rates. 

The report suggests that Americans might be more willing to splurge on the holiday season after retail sales growth has remained positive over the last three months following peak inflation of 9.1 percent in June.  

Target reported a 52 percent drop in profits for its third quarter after it was forced to slash prices for Americans hurt by decades-high inflation 

The company's stock was down nearly 15 percent when trading opened on Wednesday

Despite the gloomy outlook, US retail sales rose 1.3 percent in October, signaling that consumers might continue to shop more this holiday season

Target CFO Michael Fiddelke said he company has lost $400 million in goods due to organized theft rings and other product loss

October's retail reporting comes as good news after reports showed no growth from August to September. 

The increase was led by car sales and higher gas prices. Still, excluding autos and gas, retail spending rose 0.9 percent last month. 

Even adjusting for inflation, spending increased at a solid pace as prices rose 0.4 percent in October from September.

Economists pointed to two other factors that likely contributed to October's gain: Amazon held another Prime Day promotion last month, and California distributed inflation relief checks of up to $1,050. 

Yet there are ongoing signs that cracks are forming in consumers' ability to keep up.

More households are relying on credit cards to pay bills, with nationwide credit card balances jumping 15 percent in the July-September quarter from a year ago, the largest year-over-year increase in two decades, according to a report Tuesday from the Federal Reserve Bank of New York. 

Despite it forecast of a gloomy holiday reason, Target noted that sales for necessitates were up, specifically food and house essentials. The retailer, however, said it would work to reduce costs by $3 billion over the next three years.

It added that Target was not planning any layoffs or hiring freezes as part of the cost cutting initiative.  

Among the retailers biggest worries is the rise in inventory shrinkage, or merchandise theft, which has seen gross profits fall by $400 million this year. 

'There's a handful of things that can drive shrink in our business and theft is certainly a key driver,' Fiddelke said earlier in the year when smash-and-grab robberies were on the rise across the nation. 

The robberies plagued retailers and high-end stores in major US cities in the winter and spring, where brazen robbers would walk in and out of stores with valued merchandise, sometimes carrying out the looting in large groups. 

Back in January, one such robbery was caught on tape at a Target in Seattle, where serial shoplifter John Ray Lomack, 56, was seen making off with a 70-inch television. 

Police said Lomack nabbed at least $6,000 worth of property from this one Target location since October 2021. 

Career criminal John Ray Lomack, who is believed to be homeless, was caught on camera stealing a 70-inch television from a Target store last month, which staff claim was his 22nd instance of theft in three months

Police say Lomack loaded the television into a shopping cart and walked out of the retailer without attempting to pay

Hilding Anderson, head of retail strategy at digital consultancy Publicis Sapien, told CNN Business that Target's report suggests that consumers will be shopping wisely this holiday and hunting for the best prices rather than splurging wherever they can. 

'This quarter confirms that the middle-class consumer has been hit hard by inflation and is changing the way they spend by trading down, buying more value-priced goods, and shifting to white label products,' Anderson said. 

'It suggests continued headwinds for the non-value players in big box retail during the balance of this holiday season.' 

Annual consumer inflation dropped below 8% last month for the first time in eight months

With an annual US sales growth of 8.2 percent from last year, Walmart has attributed its latest success to an influx of wealthier shoppers seeking deals amid high inflation. Pictured, shoppers at a Walmart in Brunswick, New Jersey

When markets opened on Wednesday, the retailer saw stock rise by a further 1.27 percent

Among those benefitting form the change in consumer behavior included Walmart and Dollar General. 

On Tuesday, Walmart reported annual US sales growth of 8.2 percent from last year, beating out Wall Street expectations as stocks soared by more than 10 percent.

When markets opened on Wednesday, the retailer saw stock rise by a further 1.27 percent.  

The company noted that about 75 percent of Walmart's sales growth has been fueled by households that earn $100,000 a year, demonstrating the middle-class' flight to its stores for better deals. 

GlobalData Retail analyst Neil Saunders told CNN: 'Although times are tougher, consumers' desire for value and low-prices is playing into Walmart's hands.' 

Dollar General, which boasts regular low-prices, has also seen an influx of wealthier spenders due to inflation, with its stock up nearly 11 percent on Tuesday. 

Unlike Walmart, Dollar General saw its stock even out, falling by 1.35 percent on Wednesday morning.  

Dollar General saw its stock even out, falling by 1.35 percent on Wednesday morning

While Dollar General said it has attracted wealthier customers as well

Along with reporting sales growth, Walmart noted in its report on Tuesday that its own private-brand sales grew as well, signaling that customers are opting to avoid splurging on brand-name items to save at the checkout lines. 

The store also saw a significant three-month boost from its 'back-to-school season' promotions in the US.  

Walmart Chief Financial Officer John David Rainey told CNBC that the rise in shopping at the company's stores reflected the reality of Americans still strapped for cash. 

'Pocketbooks are stretched,' he said. 'People have less discretionary income or less disposable income to spend on things — and so they're looking for value.'