Target Stock Sinks 25% on Earnings Miss, High Costs


Target Corp. shares tumbled after the retailer posted lower quarterly earnings and said it would absorb higher costs this year rather than raise its prices.


Sales at the Minneapolis-based retailer increased in the most recent quarter as shoppers spent more on food and groceries and even luggage as they prepared to travel again, but supply-chain costs and inflationary pressures cut into profit. Like Walmart Inc., its larger rival, Target reported quarterly earnings that missed Wall Street’s forecasts.


Target shares fell 25% to about $162 in Wednesday trading, putting the company on pace for its largest single-day percentage decrease since 1987, according to Dow Jones Market Data.


Target management said fuel and freight costs will be $1 billion higher this year than it had expected, with little sign of their easing throughout 2022. The company said it would try not to pass those cost increases to consumers through higher prices for its goods, trading short-term profit for what it hopes will be longer-term market-share gains.



“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” Target Chief Executive Brian Cornell told reporters.


Target and other retailers had benefited from rising sales of higher-margin goods such as kitchen appliances, television sets and furniture during the pandemic, and profits increased. On Wednesday, the company said earnings for the April quarter were hurt by higher markdown rates and inventory impairments, and lower-than-expected sales in those discretionary categories.


Mr. Cornell said customers were buying fewer big items such as bicycles, TVs and kitchen items than in the past two years. Shoppers are “moving from buying small kitchen appliances and maybe replacing that with gift cards to restaurants and entertainment as they return to a more normalized lifestyle,” he said.


Comparable sales, including sales from Target stores or digital channels operating for at least 12 months, rose 3.3% from the prior year, the company said. Digital sales climbed 3.2%—its slowest growth since the beginning of the pandemic.


While total revenue increased 4% to $25.2 billion, operating income was $1.3 billion, down from $2.4 billion for the same quarter in 2021. Target reported earnings per share of $2.16, down 48% from a year earlier, and below Wall Street forecasts.


“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” Target Chief Executive Brian Cornell told reporters.


Target and other retailers had benefited from rising sales of higher-margin goods such as kitchen appliances, television sets and furniture during the pandemic, and profits increased. On Wednesday, the company said earnings for the April quarter were hurt by higher markdown rates and inventory impairments, and lower-than-expected sales in those discretionary categories.


Mr. Cornell said customers were buying fewer big items such as bicycles, TVs and kitchen items than in the past two years. Shoppers are “moving from buying small kitchen appliances and maybe replacing that with gift cards to restaurants and entertainment as they return to a more normalized lifestyle,” he said.


Comparable sales, including sales from Target stores or digital channels operating for at least 12 months, rose 3.3% from the prior year, the company said. Digital sales climbed 3.2%—its slowest growth since the beginning of the pandemic.


While total revenue increased 4% to $25.2 billion, operating income was $1.3 billion, down from $2.4 billion for the same quarter in 2021. Target reported earnings per share of $2.16, down 48% from a year earlier, and below Wall Street forecasts.


Target said it had no plans to cut its planned annual capital expenditure of $4 billion to $5 billion. It has opened seven new stores so far in 2022 and plans to open 30 throughout the year.

Source: https://www.wsj.com/articles/target-earnings-squeezed-by-inflation-and-fuel-costs-11652869800

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