The retail giant reported a staggering 52% drop in profit for the first quarter, heavily missing Wall Street forecasts. The company blamed higher costs for ongoing supply chain disruptions. Consumers also refrain from buying that is not essential due to high inflation.
Shares of Target (TGT) fell 27% in the late afternoon trading on Wednesday, potentially the worst day of shares since 1987. Target’s bad news has also spread to the wider market. The Dow fell more than 1,100 points, or 3.4%. The S&P 500 fell 3.9%. Retailers Dollar Tree (DLTR), Dollar General (DG), Tractor Supply (TSCO), Costco (COST) and Best Buy (BBY) were among the biggest losers in the index. The surprise for Target’s profits comes a day after rival Walmart (WMT) shares had their worst day in 35 years. Walmart also posted weak profits and a weak outlook due to rising delivery and labor costs. Walmart fell another 7% on Wednesday.
“We faced unexpectedly high costs driven by a number of factors, which led to profitability that was well below our expectations and well below our expectations over time,” Target CEO Brian Cornell said in a press release. Wednesday.
It seems that Target buyers are still spending on everyday necessities, such as food and drink and beauty products. Target said the company’s total sales had increased 4% from a year earlier, beating analysts’ estimates.
As prices rise, consumers do not waste larger items, such as TVs and exercise equipment. The company noted that it had “lower-than-expected sales in discretionary categories” and Target was forced to record the value of surplus stocks stuck in warehouses.
Target buyers are concerned about the “high and sustained inflation they are experiencing, especially in food and energy,” Cornell added during a conference call with analysts.
Inflation is a serious problem for many retailers. TJ Maxx and the owner of Marshalls TJX (TJX) announced sales that were below forecasts on Wednesday. TJX also lowered its revenue outlook.
Continuing problems in the supply chain are detrimental to retail profits. Target, like many other retailers, had to increase hourly wages to attract workers. The company said higher compensation costs for employees in its stores and distribution centers affect profits.
Large retailers are also struggling with the fact that last year’s profits were boosted by inspections of federal government incentives, a phenomenon that largely disappeared in 2022.
“We see the result as disappointing … and against the backdrop of rising costs and declining discretionary spending, especially as the 2021 stimulus passes,” Stifel analyst Mark Astracan said in a report Wednesday morning.
Cornell said during the earnings call that “while we were expecting a delay after an incentive … we did not anticipate the scale of this change.”
However, some retailers are behaving better. Home Depot (HD) reported strong sales on Tuesday thanks to the ongoing housing boom. Rival Lowe’s (LOW) also posted gains that exceeded Wednesday’s forecast.
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