Target's recent trade imports data tells the real story behind massive earnings miss

• Target executives cited the recent U.S. ports strike and need to bring goods ahead of it as a factor in its big earnings miss on Wednesday, due to elevated freight costs and overly stocked stores.
• Trade data reviewed by CNBC shows Target imported a level of goods this year across key months in advance of the strike that was similar to 2023's peak shipping season, essentially flat to down in the overall number of cargo containers.
• The data also shows that the value of goods Target imported was higher than at Walmart by $1.2 billion, reinforcing the real problem for the retailer: it missed on its forecast for consumer demand and price-point sensitivity.

After its biggest earnings miss in two years and stock plunge, Target laid some of the blame on the recent U.S. ports strike, citing higher freight costs it absorbed as a result of preemptive action to move more product into the U.S. ahead of October. But cargo container trade data reviewed by CNBC tells a more nuanced tale.

The port strikes, which stretched from New England to Texas, wound up lasting only a few days, but many companies, including Target, had rerouted and pulled forward shipments, loading up on inventory to make sure they had the merchandise needed for the holiday season.

On a call with reporters, Target CEO Brian Cornell said "lingering softness in discretionary categories" and costs associated with rushing shipments and preparing for the short-lived port strike in October hurt the company's quarterly performance. 

Michael Fiddelke, Target executive vice president and chief operating officer, told CNBC on Wednesday that higher supply chain costs were a headwind in the quarter.

"We took some action to move product ahead of the port strike which came with more cost," Fiddelke said. "It's disappointing that a deceleration in discretionary demand combined with some cost pressures have caused us to take our guidance back down after raising it last quarter."

But the trade data does not show a surge that would equate to a major pull forward of imports in relation to the strike as compared with last year. Target's peak season imports for 2024 compared with 2023 were flat to down, according to cargo container volumes data pulled and analyzed by ImportGenius.

"The nearly even volume of twenty-foot equivalent units (TEUs) between June and September 2023 compared to that same period in 2024 is striking," said William George, director of research at ImportGenius. "We would expect to see a clear uptick due to pre-ILA strike front-loading. This is a situation where flat really means down, as we're seeing," he said, referencing the stock's decline, which reached 21% on Wednesday.

The data does show the company did bring in more containers via West Coast ports. The top three ports used by Target overall were Savannah, Georgia; Long Beach, California; and the Port of Virginia.

According to supply chain data firm Sonar, spot freight prices did spike in July due to the combination of peak shipping season and the pull forwards happening ahead of the strike, with prices for a 40-foot container running as high as $9,000-$10,000. In June, the freight rate was between $6,000-$7,000. (Twenty-foot containers would be half the price but subject to the same trend line.) The overall level of imports by Target in 2023 and 2024 wouldn't lead one to conclude that any short-term price hike was a major factor in the quarter.

"After reviewing the two periods over the summer where Target brought in containers for the holidays, our data shows the bulk of their containers arrived between July and August," said Lynn Hughes, an investigative analyst at ImportGenius. "In June, there was a bump in imports, but not substantial."

Fiddelke described its import strategy as resulting in a situation where the retailer was "fuller a little bit earlier in the quarter than we would like to be, and we're never quite as efficient when our buildings are full, but we felt like that was the right decision to really protect the guest experience."

Jerry Storch, former CEO of Toys R Us and CEO of consulting firm Storch Advisors, said Target is paying the price for bigger corporate mistakes, with any freight issue to be set aside, with the retailer relying too heavily on discretionary items in its sales mix and diluting its value positioning.  

"Target's deeper problem is their strategy is not resonating with the consumer in this environment," said Storch. "Their comp sales have lagged Walmart's every quarter for several years. This gap was 500 basis points in the most recent quarter. That's a lot!" Storch said. "If they brought in too much freight early, that could explain a cost or inventory issue, but not a sales miss of this magnitude."

Signs that Target executives got the demand picture wrong can be seen in the fact that just three months ago the retailer hiked its earnings forecast. Its full-year earnings forecast is now well below what it guided to earlier this year.

If Target didn't bring in more shipping containers than it did last year, the trade data shows it still brought in way too much in dollar value. According to customs data aggregated by Panjiva, Walmart imported 25,000 shipments from May 31-Aug. 31, valued at $1.3 billion. During the same time frame, Target imported 40,000 shipments, valued at $2.5 billion.

Target has been in discounting mode for much of the year. In May, it cut prices on about 5,000 frequently purchased items, including diapers, bread and milk. In October, it added another 2,000 items to the discount list. The retailer has said 10,000 items in all will see lower prices by the end of holiday season.

Joe Feldman, senior managing director for retail consultant Telsey Advisory Group, said everything that went wrong for Target will contribute to the continued discounting. The retailer accelerated and rerouted shipments to the West Coast to avoid the East Coast and Gulf Coast port strikes, while also anticipating stronger demand for discretionary goods, which pressured costs and left the company with elevated inventory levels.

"Now, the company will have to promote more in the fourth quarter to clear through inventory to end the year in a clean position," Feldman said.

Bill Simon, former CEO of Walmart, said any short-term supply chain snafu is dwarfed by the fact that Walmart is taking some of Target's more affluent customer market share, with Walmart reporting low single-digit growth in discretionary general merchandise categories, and Target reporting a decline in those categories.

Walmart shares hit a new all-time closing high on Wednesday.

Simon added that the inventory numbers for Walmart suggest if the strike was a supply chain issue all retailers had to manage, Walmart's inventory shows it did a better job. Inventory was down 0.6%, with Walmart sales growing 5%. "I would have expected it [inventory] to go up 3%-4%," he said. "With any front-loading for the port strike, inventory would be up even higher than that."

Even if Target's overall trade numbers for peak season this year are in line with last year, according to Simon the market share shift means Walmart didn't overload, but based on its struggle with consumers, "Target did."  

— CNBC's Melissa Repko contributed reporting.

Correction: Target reporting earnings on Wednesday and its stock fell 21% on the day. An earlier version misstated the day.