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Target Plummets After Cutting its 2022 Margin Forecasts

Published May 18, 2022 07:10AM ET
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By Geoffrey Smith

Investing.com -- Target (NYSE:TGT) stock plummeted in premarket trading on Wednesday after the retailer followed rival Walmart (NYSE:WMT) in slashing its forecasts for the year due to rampant inflation.

The big-box retailer badly missed estimates for profit in the three months through April, reporting adjusted earnings per share of only $2.19, over 40% below consensus estimates of $3.06. Comparable sales, by contrast, rose by 3.3% - more than expected - as the retailer passed on higher prices to its customers.

By 8:15 AM ET (1215 GMT), Target stock was marked down 21% in premarket trading, putting it on course to open at a two-year low.

Walmart had reported a similar pattern on Tuesday, warning that higher input costs for labor, among other things, were hitting its bottom line.

Earnings were down by nearly half from a year earlier, as discounting to shift excess inventory, along with a surge in freight and transportation costs, reduced Target’s operating margin to 5.3%, well below its medium-term aspiration of 8%.

Chief executive Brian Cornell said he doesn’t expect any meaningful improvement in margins in the current quarter, and even an improvement in the second half will probably only take the full-year margin back up to around 6%.

Target's earnings also mirrored Walmart's in reflecting a sharp slowdown in online sales growth, as the reopening of stores across the U.S. allowed consumers to revert to previous habits. Comparable digital sales were up 3.2% on the year, having risen 50% a year earlier.

Target has built its online channel to a large degree around its physical store network, getting the stores to function as fulfillment centers for online orders. Target's same-day services, which include Order Pickup, Drive Up and Shipt, continued to gain traction: sales through those channels grew 8%, with Drive Up sales growing "in the mid-teens" after more than doubling last year.

Target Plummets After Cutting its 2022 Margin Forecasts
 

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Comments (6)
Dominic Mazoch
Dominic Mazoch May 18, 2022 10:19AM ET
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Maybe if the CEO's and BID's of Target, Walmart and other Big Box have to shop on a Saturday afternoon on a three day Federal Holiday. Then they will undetstand thing from a customer's angle. You know, no customers, no custom, no profit.
Ryan Leonard
Ryan Leonard May 18, 2022 10:15AM ET
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The top three merchants in the US are bleeding cash: Amazon, Walmart and Target. But sure, I'm sure this is nothing, no recession here.
Gary Smith
Gary Smith May 18, 2022 9:36AM ET
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This is the problem with large mega stores. They get so complaisant with delivering the same low double digit margin, year after year. When challenging times finally come, management are not skilled enough to navigate the waters. Walmart is a great example. A failure on many levels.
Jose Cabreja
Jose Cabreja May 18, 2022 9:17AM ET
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at least they still have same day deliveries n refund your $ fast unlike other stores.
Casador Del Oso
Casador Del Oso May 18, 2022 9:09AM ET
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We're on Target for a huge economic downturn.
Dominic Mazoch
Dominic Mazoch May 18, 2022 8:41AM ET
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Target:1. You have redone your stores twice in 5 years. That money could have been used to:2. Lower prices.3. Hire more checkers and build more you scan lines.4. Spend more to improve supply chains.5. And I do not want to walk past a huge section.of perfume to get to the drug store part of the comex.Target, you are missing your customets. So you are missing your profit target. Puns intended.
 
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