Target stock drops 20% after missing earnings by a mile. What didn’t go well.

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Earnings targets were well below analysts’ expectations.

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Target

The stock tumbled after the retailer reported first-quarter adjusted earnings of $2.19 a share, well below analysts’ forecasts.

It’s not just the last quarter that has seen Target stock tumble, down nearly 24%. The retailer also said that for the second quarter, it expects its operating margin rate “to be within a broad range centered around the operating margin rate of 5.3% in the first quarter.” . 2022. Target now expects its full-year operating margin rate to be around 6%, down from a previous target of 8%.

“Throughout the quarter, we faced surprisingly high costs, driven by a number of factors, which resulted in profitability well below our expectations and well below what we expect to operate. over time,” Chief Executive Brian Cornell said in a statement.

Analysts had expected Target (ticker: TGT) to earn $3.07 per share, on revenue of $24.48 billion. Last year, it earned $3.69 a share on sales of $24.2 billion.

In general, supply chain and transportation pressures have weighed on earnings across all sectors recently, even as rising inflation has led to higher sales as consumers are forced to spend more to buy the same goods.

Target’s report came a day after

walmart

(WMT) delivered mixed results in the first quarter. While the world’s largest retailer posted revenue above expectations, its earnings beat expectations and lowered its forecast for the full year. The company noted that many of its consumers are changing their behavior in the face of inflation, which remains at its highest in decades.

Walmart generally serves a lower income shopper than Target. Additionally, Walmart management said on its conference call that not all consumers have noticeably changed their behavior and that it has recently seen some growth in higher-priced items like game consoles. This could bode well for Target, as its slightly more affluent shoppers may therefore be even more willing to spend.

The latest government stimulus checks were issued over a year ago, and they were the hardest hit by low-income Americans, who now also face higher prices for basic necessities. . There was some hope that this cohort might overlook at least a few higher prices, given that as a group they are also the most aided by rising wages. However, these wages have not risen as fast as inflation, a fact that was highlighted in Walmart’s report.

Target is less dependent on low-margin grocery stores than Walmart and tends to attract wealthier customers. So if it, too, saw its buyers shift to cheaper options and pull back in Q1, it could mean inflation is having a bigger impact even further up the income scale, despite savings rates. relatively high and lower debt ratios of Americans.

Investors will be especially keen to hear from Target management whether the company’s discretionary categories have consistently performed well. Not only are customers most likely to opt out of non-essentials first if they can’t cover groceries, but many have already bought plenty of clothes and gadgets during the pandemic.

Other areas of focus will likely be Target’s continued growth at curbside and in-store as these allow it to fulfill more online orders in stores – a cheaper option than shipping – and all commentary on supply chains, which remain a focus amid ongoing global disruptions. .

Write to Teresa Rivas at [email protected]

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