Target exec warns retail shrink remains 'significant headwind'

Target CFO Michael Fiddelke said Wednesday that inventory shrink – the loss of products due to circumstances such as theft – continues to be a significant headwind for the company.

The rising cost of shrink represented a 40-basis-point headwind to the company's third-quarter gross margin rate, Fiddelke told analysts Wednesday during the retailer's third-quarter earnings call.

"While we're encouraged that this impact was smaller than expected and better than we faced earlier in the year, growth in shrink remains a significant financial headwind," Fiddelke said.

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The remarks come after CEO Brian Cornell said in May that worsening shrink rates were putting significant pressure on its financial results. He projected the company would take a more than $500 million hit in profits this year alone due to brazen retail theft.

Nine of its stores across the country shuttered in late October even after Cornell said the company's priority was focused on keeping stores open. However, Cornell noted that despite its efforts, the company wasn't able to keep operating the stores safely or successfully. 

Retail executives and industry trade groups have continuously pleaded for help from Congress to combat the issue as it grows in scope and complexity. 

Meanwhile, Target on Wednesday forecast a higher-than-expected holiday-quarter profit. 

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It estimated adjusted earnings between $1.90 to $2.60 per share in the fourth quarter, higher than Wall Street expectations. Target shares jumped Wednesday on the news.

During the third quarter, sales at stores opened for at least a year declined 4.9%, in line with company expectations. 

"While third-quarter sales were consistent with our expectations, earnings per share came in far ahead of our forecast," Cornell said. 

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Target reported a third-quarter profit of $971 million, or $2.10 per share, surpassing Wall Street expectations of $1.48 a share. 

Cornell credited this performance to the company's "commitment to efficiency and disciplined inventory management."