Target could use some holiday cheer from shoppers after the retailer reported a decline in sales over the last three months – and expectations of a lackluster holiday shopping season.

Shoppers didn't spend as much on apparel and other discretionary products such as furniture, appliances and electronics during the three-month period ending Nov. 2. However, sales of beauty products were up 6%.

Target also forecasts flat comparable sales during the current fourth quarter, which includes the holiday shopping season – a troublesome sign for the retail industry as a whole.

During the third quarter, Target reported an increase in comparable sales of 0.3%, compared to a year ago, but that fell short of the average analyst estimate compiled by Bloomberg.

Sales at comparable stores fell 1.9%, while digital sales increased 10.8% during the quarter, the company said.

It's a forecast that pales compared with Walmart's expected increase of 4.8%-to-5.1% in sales in the current quarter including the holiday shopping season, which the retailer announced Tuesday.

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"Consumers continue to spend cautiously, most notably in discretionary categories," Target CEO Brian Cornell said in a conference call Wednesday while detailing the company's financial performance.

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Target shares plummeted 20% in early trading Wednesday. The sharp drop put the company's stock price down about 14% year-to-date.

'Volatile operating environment'

While the retailer saw an increase in-store traffic, Cornell called the third quarter "a volatile operating environment," in a statement included with the earnings results.

"We saw several strengths across the business, including a 2.4% increase in traffic, nearly 11% growth in the digital channel, and continued growth in beauty and frequency categories," Cornell said. "At the same time, we encountered some unique challenges and cost pressures that impacted our bottom-line performance."

Total revenue of $25.7 billion in the third quarter was up 1.1% over the previous year but fell short of the $25.9 billion expected by analysts polled by S&P Global Market Intelligence.

Increased digital sales cut into profit because of the higher cost of fulfilling orders, the company said. The company also had higher supply chain costs due to managing higher inventory levels, which occurred because the retailer ordered more goods to offset a potential port strike on Oct. 1.

Skittish and deal-hungry customers responded well to the Target Circle Week, held Oct. 6-12. But sales dipped the week before and after the sales event, the company said, suggesting how resourceful customers have become.

And executives expressed excitement about customers being drawn to the stores for the upcoming Nov. 29 release of Taylor Swift's “The Tortured Poets Department: The Anthology” on vinyl and CD, exclusively at Target, which includes four acoustic bonus songs (the vinyl album also includes a poster of Swift).

During the period, the retailer added nearly 3 million members to its Target Circle loyalty program, which it revamped in April.

Target also cut prices on more than 2,000 items this holiday season.

While shopper visits rose 2.4% during the three-month period, that was lower than the 3% traffic growth in the prior quarter.

Still, shoppers didn't spend on those "discretionary purchases that Target relies on," eMarketer analyst Zak Stambor told USA TODAY.

"Target's Q3 performance is a stark contrast to Walmart's, highlighting the big differences in their product mixes. Groceries make up about 60% of Walmart's sales but only 23% at Target," he said. "Walmart's grocery success has helped it win over more affluent consumers, and its push to offer more premium products in beauty and apparel is helping it steal market share from Target."

Unlike Walmart and Costco, "Target hasn’t found a formula that works in this macroeconomic environment," Stambor said. "While it says it will have lowered prices on nearly 10,000 items by the end of the holiday season, that strategy isn’t enough to convince shoppers to spend."

Walmart is "executing better and Target is really missing the mark," investment research firm CFRA analyst Arun Sundaram told Reuters.

"Things have taken a turn (for Target) in Q3. And it seems that the softness is going to linger into the holiday season as well," Sundaram said.

(This story has been updated with new information.)

Contributing: Melissa Ruggieri, USA TODAY; Reuters.

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