After a discounter cuts its forecast, Target experiences a 20% decline in shares and posts its largest earnings miss in two years.

• Target missed third-quarter earnings and revenue estimates and cut its full-year guidance.
• Target struggled to drive sales even after reducing prices on thousands of items.
• The next day, Walmart surpassed Wall Street predictions and increased its forecast.

Wall Street missed the quarterly earnings and revenue expectations of the discounter on Wednesday, despite its price cuts on thousands of items and early holiday sale.

The big-box retailer changed its full-year profit guidance and lowered its expectations for adjusted earnings per share, three months after raising that forecast. It now anticipates a range of $8.30 to $8.90 per share, below the $9.55 a share expected by analysts, according to StreetAccount.

The metric that Target is now targeting for fourth quarter sales is approximately flat, which includes sales made on its website and stores that have been open for at least 13 months.

The company missed Wall Street's earnings per share estimate by 20%, marking its largest miss in two years. Additionally, it was the first time the company missed its revenue target since August 2023.

The company's shares plunged about 20% in premarket trading.

The company's quarterly performance was negatively impacted by the "lingering softness in discretionary categories," as well as the costs associated with expediting shipments and preparing for the October port strike.

Michael Fiddelke, Chief Operating Officer, stated that although a decrease in discretionary demand and some cost pressures have led to a reduction in guidance, Target remains optimistic about its long-term prospects.

According to LSEG's survey of analysts, Target's three-month performance from July to November 2021 exceeded Wall Street's expectations.

• Earnings per share: $1.85 vs. $2.30 expected
• Revenue: $25.67 vs. $25.90 billion expected

Target, a retailer known for its affordable and trendy clothing, home goods, and other discretionary items, has faced challenges in attracting consistent foot traffic and increasing sales due to the economic downturn caused by the pandemic. Consumers have become more selective with their spending after years of facing higher costs for food, housing, and other necessities.

In May, Target announced that it would reduce prices on approximately 5,000 frequently purchased items, including diapers, bread, and milk. The company followed up in October with another round of price cuts on over 2,000 items during the holiday season, including cold medicine, toys, and ice cream.

By the end of the holiday season, Target will have reduced prices on over 10,000 items.

After hearing from shoppers about the importance of value and affordability, Target offered discounts on frequency items. This allows customers to save money on essentials, leaving more room in their budgets to spend on products they desire, such as new outfits or beauty items, said Chief Commercial Officer Rick Gomez.

Despite the price cuts, Target's performance in the fiscal third quarter remained unchanged.

Despite analysts expecting a 1.5% sales gain, Target only managed to achieve a 0.3% increase in sales, with more spending on its website and less at its stores.

In the third quarter of the current fiscal year, Target's net income decreased by approximately 12% to $854 million, or $1.85 per share, compared to $971 million, or $2.10 per share, in the previous quarter. Despite this, revenue increased from $25.40 billion in the previous year.

Despite a 1.9% decline in comparable store sales year over year, Target's digital sales grew by 10.8%, driven by gains in curbside pickup and same-day home deliveries.

During the quarter, customers were drawn to food, everyday essentials, and beauty products. Sales in the beauty category, including those at Ulta Beauty shops inside Target, increased by more than 6%. In contrast, the food & beverage and essentials categories experienced low single-digit gains compared to the previous year.

The retailer based in Minneapolis reported conflicting results with Walmart, which reported improving sales trends in discretionary merchandise for the second quarter in a row and gaining market share among upper-income households.

While both large retailers have different sales mixes, groceries make up approximately 60% of Walmart's U.S. business but only about 23% of Target's in the most recent fiscal year, as stated in their financial filings.

Gomez stated that the retailer is facing shoppers who are smart and choosy, unwilling to make a purchase until the price is satisfactory.

""Consumers are becoming more resourceful and strategic in their shopping habits, as they know there are deals to be found and are willing to search for them, waiting for the perfect opportunity to shop in-store or online," he stated."

Target's Circle Week in October was the biggest to date in terms of sales, with 3 million new members signing up for the loyalty program, despite the week being relatively quiet, according to Gomez.

Gomez stated that Target experiences growth when it introduces eye-catching merchandise, including new workout gear, pet accessories, seasonal food flavors, and a new hair care line.

Fiddelke stated that higher supply-chain costs were another challenge faced by the company during the quarter. In preparation for the port strike, which lasted only a few days, Target rerouted and rushed shipments, and stocked up on inventory to ensure it had the necessary merchandise for the holiday season.

""Protecting the guest experience required us to make a decision that resulted in being fuller earlier in the quarter and less efficient, but we felt it was necessary," he stated."

Despite outperforming the S&P 500 in the past year, Target's stock has not kept pace with the broader market. As of Tuesday's close, Target's stock is up about 9.5%, compared to the S&P 500's approximately 24% gains during the same time period. However, the company's stock price of around $155 is still well off the pandemic highs, when its stock rose to nearly $270.

– CNBC's Robert Hum contributed to this report.