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Target missed the bullseye by a wide margin in the third quarter as the discount retailer felt the brunt of a consumer spending slowdown in more discretionary merchandise.

“In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty," Target Chairman and CEO Brian Cornell stated in the earnings release. "This resulted in a third quarter profit performance well below our expectations.

Target stock dropped 13% on Wednesday. Shares of the retailer are down 32% year-to-date, compared to a nearly 17% drop for the S&P 500.

On a call with reporters, Cornell added that a more cautious approach to holiday season expectations are needed given the current trends in the business.

"Sitting here today, if you look at some of the syndicated data that has been released, obviously you've seen a significant change in consumer shopping patterns as we ended October and moved into the month of November," he said. "So clearly, it's an environment where consumers have been stressed. We know they're spending more dollars on food and beverage and household essentials. They're looking for promotions and are looking for that great deal. And I would expect that promotional focus will continue throughout the holidays."

Here are a few highlights from Target's third-quarter earnings:

• Operating profit margin clocked in at 3.9%, missing estimates for 5.35%. Company says margins fell "far short" of expectations.

• Inventory shrinkage, driven mostly by "organized retail crime," has reduced the retailer's gross profit margin by $400 million so far in 2022.

• Comparable sales increased 2.7%, slightly ahead of estimates for 2.51% growth.

• "Continued softness" noted for discretionary merchandise categories.

• Inventory increased 14.4% year over year, cooling from the 2Q growth rate of 36%.

• Adjusted EPS came in at $1.54, well shy of analyst estimates for $2.17.

• Guidance lowered for the top and bottom lines for the fourth quarter.

• "Soft" traffic trends called out for November.

• New three-year $2 billion to $3 billion cost-cutting initiative announced.

Several analysts on Wall Street were bracing for a weak quarter and 4Q guide from Target, one of them being Citi retail analyst Paul Lejuez.

"We believe that the top-line overall remains healthy, with continued strong spending at the upper end of Target's income demographic," Lejuez said in a note ahead of the results. "Based on our conversations across the retail sector and with Target management, however, we do not believe most companies (including Target) have seen a trade down customer yet. And overall the lower income consumer continues to struggle and prioritize consumables over discretionary items, which has a negative margin impact for Target."

The analyst added that the Citi team has "been of the view that management guidance for 4Q is too optimistic."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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