Target posts bigger-than-expected drop in quarterly sales, readies for key holiday period

Nov 19 (Reuters) - Target TGT.N on Wednesday reported a bigger-than-expected drop in quarterly comparable sales as cash-strapped U.S. consumers pulled back discretionary spending on apparel and home decor.

A prolonged U.S. government shutdown that delayed federal pay and food-stamp benefits, as well as still-high inflation and tariff worries has prompted consumers to hunt for cheaper groceries, and curtail non-essential spending.

Total comparable sales - from online channels and stores open for at least 13 months - fell 2.7% in the third quarter, compared with estimates of a 2.08% drop, according to data compiled by LSEG.

Sales in the household essentials category fell 3.7%, while digital comparable sales rose 2.4%. Digital sales, a bright spot for Target in the past two quarters, missed expectations for a 3.18% growth, according to Visible Alpha.

Once a retail darling, Target has suffered from self-inflicted wounds over the past two years. Inventory missteps, rising theft, understaffed stores and its approach to diversity, equity and inclusion policies have eroded the shopping experience and driven customers away.

To turn its business around, the company named longtime executive Michael Fiddelke as CEO in August. Fiddelke has pledged to broaden and refine the retailer's merchandise assortment while accelerating the adoption of new AI technologies.

Last month, he cut 1,800 corporate roles in a bid to reduce costs and streamline operations after years of trailing rivals Walmart WMT.N and Amazon AMZN.O.

The Minneapolis-based retailer also slashed prices on 3,000 everyday items, including food and household staples, and introduced a cheaper Thanksgiving meal kit to appeal to cost-conscious shoppers.

Target cut the top end of its annual earnings forecast by a dollar to a range of $7.00 to $8.00 per share, excluding related severance charges and other one-time items.

Mounting economic pressures have fueled multiple forecasts signaling a subdued holiday shopping season this year. The record U.S. government shutdown has also unsettled consumers just days ahead of the start of the crucial shopping period.

Home improvement chain Home Depot HD.N lowered its annual expectations on Tuesday, citing weak demand for pricey home renovation projects amid a still-muted housing market.

Target's shares have lost more than a third of their value this year, hurt by negative comparable sales growth and market share losses to bigger rival Walmart, which has channeled investments into technology to speed up deliveries of grocery and household products.

Walmart is due to report quarterly results on Thursday.

Target earned $1.78 a share in the third quarter ended November 1, beating analysts' estimates of $1.72. Profits were boosted by double-digit sales growth in its higher-margin Roundel advertising business.

Total revenue fell 1.6% to $25.27 billion, just shy of estimates.