What happened

Shares of Target Corporation (NYSE:TGT) were plunging today after the big-box retailer offered disappointing guidance for the key holiday quarter in this morning's earnings report. As a result, the stock was down 9.6% as of 10:56 a.m. EST.

Target's results for the third quarter were respectable, as comparable sales increased 0.9% on a 1.4% uptick in traffic and the company posted strong online sales growth at 24%. 

The front of remodeled Target store

Image source: Target.

So what 

Overall revenue increased 1.4% to $16.7 billion, ahead of estimates at $16.6 billion, while gross margin dipped 10 basis points to 29.7%. General and administrative costs increased by 80 basis points due to increased compensation as the company recently announced a wage hike, and depreciation expenses also jumped. As a result, adjusted earnings per share fell from $1.04 to $0.91, though that was at the upper end of management guidance at $0.75 to $0.95 and beat expectations at $0.86.

CEO Brian Cornell said he was "very pleased" with the performance and said Target was making key investments that would drive the long-term health of the company, such as new exclusive brands and improved in-store service due to increased wages and training.

Now what 

Despite Cornell saying that the company was "very confident in our holiday plans," the market was not impressed with its guidance. 

For the fourth quarter, Target said it expected comparable sales of flat to 2% and adjusted earnings per share (EPS) of $1.05 to $1.25, which compares to the analyst consensus at $1.24 and is down from $1.45 a year ago.

While Target seems to have shored up its top line, the falling profits are a concern as the company seems to be stuck in a no-man's land between Wal-Mart and Amazon. Unlike many retailers, Target continues to open new stores, but that strategy will remain questionable as long as profits are declining. Considering the disappointing guidance, this sell-off is not a surprise.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.